Australian Dollar Nears Parity With US Dollar for First Time In Years

On the eve of the speculated Federal Reserve announcement of a re-introduction of stimulus measure to prevent the US economy sliding back into recession, a stark contrast has come about with the Indian and Australian Governments raising interest rates to prevent excessive inflation as their economies grow. The difference in the health of these eastern and western economies could not be more acute and has resulted in the Australian Dollar nearing parity with the US Dollar for the first time in years.

Pound Sterling – UK Markets

Yesterday’s close saw £1 buying €1.1537, a rise of 0.2% as Sterling’s rally against the Euro continued ahead of key British and European decisions on interest rates. In early European trading, Sterling has fallen back against the Euro and is currently trading at €1.1514, but it has continued to strengthen against the Dollar and is standing at $1.6063 (at 08:58 GMT). PMI Construction data this morning will not have helped Sterling revealing a drop in the construction sector from the previous month and also coming in below expectations, particularly when the European PMI Manufacturing data came in at the same time above forecasts. Thursday sees the Bank of England interest rate decision but as this is widely expected to be held and with the threat of quantitative easing diminished, tomorrow’s Federal Reserve quantitative easing decision is the key event to watch for overall impact on the state of play in the currency markets.

US Dollar – US Markets

The Dollar has been depreciating against Sterling and the Euro since late summer and all is coming to a head with the long-awaited quantitative easing decision due tomorrow. It is now thought very likely that the Federal Reserve will announce an re-introduction of stimulus with the most likely currency reaction being a depreciation of the US Dollar with a knock-on effect on other currencies. Before the Federal meeting tomorrow, the USA is poised for mid-term elections today which will choose a new House of Representatives and elect a third of the members of the Senate. It is widely expected that the Democratic Party will fare badly as Americans seek to blame somebody for the on-going economic problems and high unemployment that they are experiencing.

Euro – European Markets

The Euro closed 0.5% higher against the Dollar yesterday at $1.3926. Much of Europe was closed for the All Saints religious holiday. Currently, the Euro is trading at $1.3959 (at 09:06 GMT) as it continues to flirt with the $1.40 barrier. The Euro has climbed against the Pound this morning following better than expected manufacturing data. Moody’s rating agency has also declared that a Eurozone default is unlikely since in Ireland, Portugal and Greece domestic demand for sovereign bonds is strong from banks and pension funds. The bonds are offering good yields because of the problems caused by the sovereign debt crisis and ratings agency downgrades. The European Central Bank interest rate decision is on Thursday but is expected to be held at 1 percent.

Other Currencies – Highlights

The Australian Central Reserve Bank announced a surprise 0.25% increase in interest rates taking the level to 4.75%.The move has been justified as a measure to prevent inflation taking hold within the Australian economy. It has caused a surge in the value of the Australian Dollar which is near parity with the US Dollar. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.