Australia Raises, Canada Cuts Rates

Unlike other central banks which are busy cutting rates, the Reserve Bank of Australia raised the benchmark rate by 25 bp to 7.25% Tuesday to stem the fastest inflation since 1991. The rate now stands at a 12-year high. The RBA said there was “evidence that some moderation in household demand is beginning to occur”, which signals that there may be no need to raise rates further as consumer spending slows down.

The Bank of Canada, on the other hand, cut the benchmark interest rate from 4% to 3.5%, the third cut since December. The majority had thought they would cut by just 25 bp, not as much as 50 bp, which is the biggest cut since 2001. The BOC said that “further monetary stimulus is likely to be required in the near term” as signs of economic slowdown in Canada are “materializing and, in some respects, intensifying”. In plain language, this means they have more rate cuts in mind down the road. With the US nearing or already in recession, Canada stands to lose a lot economically as it ships about 80% of its exports to the US. The BOC’s next decision is on April 22.

Bernanke Says

Fed chief Bernanke urged mortgage lenders and banks to write down more principal on troubled mortgage loans, noting that so far, principal forgiveness is rare. Also, Fed vice chairman Kohn said the banking industry faces “serious challenges”.

Forex Trading

AUD/USD fell almost 200 pips Tuesday to around 0.9210 after RBA Governor Glenn Stevens signaled he will pause in raising rates. The Canadian dollar fell versus the US dollar and Japanese yen. EUR/USD is trading between 1.5150 and 1.5280, and upside potential is likely if it breaks above 1.5300.

Wednesday:

Australia GDP 0030 GMT

UK PMI services 0930 GMT

Eurozone retail sales 1000 GMT

US MBA mortgage applications 1200 GMT

US ADP employment 1315 GMT

US factory orders 1500 GMT

Fed’s Beige Book 1900 GMT

Reserve Bank of New Zealand rate decision 2000 GMT (rate expected to stay at 8.25%)

Posted in Categories: Forex.

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Comment by Jon

2008-03-06 00:51:02

It would be nice to see a pause here in Australia, after so many rises in the last few years or so. It is estimated that 300,000 Australians risk losing their homes if interest rates continue to rise, so maybe this would create an even greater problem to the economy as seen in the USA.

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