In what is turning into a problematic period of strength for the RBA and to a lesser extent, the Australian economy, the Aussie dollar continues to defy expectations and the tractor beam of lower commodity prices by staying strong.
Last night after the ECB cut its refinancing interest rate to 0.15%, but more crucially cut the rate it pays banks for deposit held by them with the ECB to -0.1%, – yes, that is a negative – the Aussie roared around 60 points to 0.9345.
It sits this morning at 0.9339 and in a world of low and negative rates Australia’s cash rate of 2.5% and 10-year bond rate of 3.78% against US 10-year rates of 2.59%, UK 10s at 2.68% and German 10s at a super low 1.41%, why wouldn’t investors stick their money in Aussie dollar? It can’t all be in the share market.
So there we are – in a world of super-low rates, the Australian economy is starting to look like it did a few years back, relatively strong again and with high interest rates.
It’s a recipe for a higher, not lower, Aussie dollar.