FOREX FLASH
Dovish RBA bad news for Aussie
The strong Australian dollar was hit yesterday by the latest minutes from the Reserve Bank of Australia (RBA), which showed that the decision to raise rates was a finely balanced one. Although there are further RBA hikes in the pipeline, the central bank is aware of the impact that the recent tightening has had on the Australian dollar. The Aussie dollar has been trading at close to parity with the US dollar, but yesterday’s news saw the greenback strengthen.
Brazilian real to underperform peso
Bank of America-Merrill Lynch analysts forecast yesterday that Brazil will keep its headline interest rate on hold at a record low until 2011 because concerns of inflation in the Latin American country are “exaggerated”. The benchmark Selic rate is currently at a historic low of 8.75 per cent. Analyst Daniel Tenengauzer said that the Mexican peso will outperform the Brazilian real and investors should go short on the real.
Greece and bank jitters hit euro
The euro slumped to a 10-week low yesterday against the dollar on investors’ concerns about the state of the region’s banks and Greece’s fiscal health. Investors were not convinced by Greek prime minister George Papandreou’s speech on Monday, where he outlined spending cuts to bring his country’s spiralling deficit under control.
AAA countries under pressure
Triple-A rated countries are likely to be forced to cut their budget deficits before their economic recoveries are assured, ratings agency Moody’s said yesterday in its 2010 outlook for sovereign debt. Rising borrowing costs will require countries such as the US and the UK to contain their government debt and to engage in fiscal tightening, even if the recovery is not strong enough.