The Reserve Bank of Australia yesterday decided to increase the cost of borrowing for the sixth time in seven meetings. The benchmark rate is now at 4.5 per cent. The Australian dollar fell in the wake of the announcement to US$0.9189 as investors anticipated a pause in the coming months. Data from Credit Suisse suggested that the RBA will now lag its Canadian and New Zealand counterparts in the speed at which it raises rates.
RISK AVERSION TRIGGERS WEAKER REAL
Brazil’s real weakened yesterday as investors lost their appetite for risk. The currency weakened 1.1 per cent against the US dollar as worries about the Greek bail-out package sparked short-term risk aversion which weighed on the Latin American currency. Investors are now seeking out safe havens rather than piling into risky emerging market currencies, which have been yielding higher-returns.
GREEK BAILOUT WEAKENS EURO
The euro traded below $1.31 yesterday as investors were unconvinced that the €110bn bail-out package would be sufficient to contain the debt crisis that is plaguing the Eurozone. The turmoil has also pushed back the markets’ expectations of when the ECB will start to hike interest rates. Interest rate swaps are suggesting a hike of 0.46 percentage points over the next year.