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Decision by Reserve Bank of Australia Catches Investors by Surprise

Tuesday, February 02, 2010 GMT

By: Barbara Zigah

Investors were caught flat-footed by the Reserve Bank of Australia when the central bank made no move to increase a key interest rate, which had long been predicted by analysts and investors alike. As a result, the Australian Dollar slipped more than 1% versus the U.S. Dollar and Japanese Yen, within minutes of the announcement by the RBA that the 3.75% interest rate would be held. As reported at 3:39 p.m. (JST) in Tokyo, the Australian Dollar traded against the greenback at $0.8811, a decline of 1.1%. Versus the Japanese Yen, the Aussie tumbled to 79.94 Yen, a fall of 1%. Market players expected the RBA to raise the benchmark rate from 3.75% to 4.0%, given the improvement in the Australian economy. RBA governor, Glenn Stevens, intimated that further interest rate adjustments may still be necessary to ensure that, in the medium term, inflationary targets remain consistent.

The decline in the Aussie spilled over to other currencies, including the Euro, which fell against the U.S. Dollar to $1.3920 following the RBA decision; it later rebounded slightly to $1.3928. The U.S. Dollar slipped versus the Japanese Yen after the announcement to 90.55 Yen; it, too, rebounded to 90.79 Yen, a .2% rise in the day’s trading.

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<h1>Decision by Reserve Bank of Australia Catches Investors by Surprise </h1> Tuesday, February 02, 2010 By: Barbara Zigah 
 
Investors were caught flat-footed by the Reserve Bank of Australia when the central bank made no move to increase a key interest rate, which had long been predicted by analysts and investors alike. As a result, the Australian Dollar slipped more than 1% versus the U.S. Dollar and Japanese Yen, within minutes of the announcement by the RBA that the 3.75% interest rate would be held. As reported at 3:39 p.m. (JST) in Tokyo, the Australian Dollar traded against the greenback at $0.8811, a decline of 1.1%. Versus the Japanese Yen, the Aussie tumbled to 79.94 Yen, a fall of 1%. Market players expected the RBA to raise the benchmark rate from 3.75% to 4.0%, given the improvement in the Australian economy. RBA governor, Glenn Stevens, intimated that further interest rate adjustments may still be necessary to ensure that, in the medium term, inflationary targets remain consistent. 
 
The decline in the Aussie spilled over to other currencies, including the Euro, which fell against the U.S. Dollar to $1.3920 following the RBA decision; it later rebounded slightly to $1.3928. The U.S. Dollar slipped versus the Japanese Yen after the announcement to 90.55 Yen; it, too, rebounded to 90.79 Yen, a .2% rise in the day&rsquo;s trading.&nbsp; 
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