Australian Dollar Outlook Feb 3

The majority of the market believed a 25bp increase in the official cash rate was inevitable but the RBA decided a move was unwarranted at this stage.

It would appear that they believe the banks have been doing some of their job for them by increasing bank lending rates by more than the recent official rate increases.

 The RBA has decided to wait and see how these rate increases affect the economy before making any further moves. Higher interest rates are inevitable, with another 1% likely to be added before the end of the year.

The AUD fell quickly after the announcement, to trade back below USD0.8800, but has since recovered a lot of its losses overnight. Stronger offshore equity markets and commodity prices have contributed to the about turn of the AUD.

Given we have failed to break back below the December low of USD0.8735, and with further buying interest emerging at current levels, expect the AUD to remain well supported today.

Despite yesterday's fall the medium term outlook for the AUD remains relatively positive, with commodity prices expected to remain strong, while Australian interest rates remain quite a bit higher than many other countries throughout the developed world.

Majors: Renewed interest in riskier trades sparked a sell off in the USD overnight. Investors' nerves appear to have eased slightly in relation to the EU debt crisis, which has been affecting a number of nations of late.

Greece has drawn most of the attention and last night the Greek prime Minister announced further measures to try and cut the country's budget gap.

It is also widely anticipated that  the EU will be forced to provide some emergency funding to help calm financial markets and lower the high yields currently seen on Greek bonds.

Positive news in relation to the US housing market also helped boost markets.

The National Association of Realtors in the US said that the number of people looking to buy a home in the US rose slightly in December.

This latest report follows other positive US reports released on Monday, suggesting the US economy may be showing some signs of life.

Provided by Bellfx.com.au

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