AUD Roller-Coaster ride continues

Market Update

For the second time this week the AUD again tested the waters around 0.9000 against the USD. The US Federal Reserve chairman Ben Bernanke has come under fire from certain sectors of the economic community for cutting rates so steeply. Some schools of though speculate that the rate cuts have encouraged consumer spending which drives 70% of the US economy. This is a concern because in a credit risk environment this provides cheaper credit, which in turn provides better opportunity to borrow, which in turn pushes up inflation which potentially risks larger problems. What this meant for the AUD initially due to the rate cuts (1.25%) by the Fed Reserve was a widening in our interest rate differentials that drove the AUD to the the highs we are currently experiencing. In summary for January in a month where constant talk of a US recession put the AUD through the ringer along with a range of other high-yielding currencies, the local unit did well to finish off the month on a high and cement some gains made through a volatile period.  

Since the start of this year we've seen a number of factors that have contributed to January being labeled the worst performing month since the 1987 stock market crash. Fear and panic within the stock market; based on investor concerns that the global credit crisis will sap even more momentum from the financial system and further hurt economic growth has been the primary driver behind the continued volatility in our stock market and subsequently the Aussie dollar.  

In what's likely to be the Rudd governments first interest rate hike this month, the hope that the US cuts would save the government are unlikely to be realised. Essentially in the current environment the US are becoming less relevant to our own economy and it's direction. Certainly while the US can have an impact, we're seeing more and more a reliance on what happens in China, India and Asia. However, the overiding motivator behind the likely increase to interest rates this month is the continued passion Australians have for borrowing and spending on credit. So much so that recent data showed the biggest annual surge in borrowing since the late 80's. 

Trading Range

0.8910-0.8970