In Central Bank News

This week has brought the announcement of two very different decisions from two of our central bankers, but interestingly with similar economies but very different customers.

Yesterday as the market speculators had predicted the Reserve Bank of Australia lifted rates by 25 bps to 4.00%, making it abundantly clear in the following press release that Australia was still experiencing economic growth and lifting rates was essential to keep pace with this growth and also normalise (politicians new favourite term) the cash rate during 2010, whatever that means.

Whilst on the other side of the globe Canada decided to leave rates on hold at 0.5%, and left the market with the view that has prevailed for a while that their accomodative policy would remain in place. This even though the last couple of GDP numbers have been very positive, inflation well within its forecast and on track for a steady recovery.

This morning I was pondering the question of why such different views from economy's that are clearly very similar, both are commodity driven, both have similar land mass and populations, both have a developed business culture, I mean the similarities are endless.

It really comes down to their customer base, one has china and India and one has the america's. Asia is booming beyond belief with double digit growth and America is struggling to find its feet with oversupplies of natural gas and oil. Despite this the Canadian currency remains well bid in the long term, suffering only at the hands of risk averse plays in the currency markets, the Aussie has been very well bid for the 12 months, however it is starting to cool off, yesterdays rate rise went down like a lead balloon with the currency markets, everyone including the neighbours dog looked like they were short the Aussie.

I note at the Asian open this morning the markets are giving the aussie a dose of reality, its struggling to hang onto its highs from yesterday, with China and the emerging world the only ones really left that want to buy it. The long term charts such as the daily and weekly dont normally lie. The trend is pointing down for the Aussie, does this mean we will see a concerted sell off I doubt it if growth in the emerging world stays strong, but I think the smart play from here until fundamentals change is a hard sell of any bullish rally back to strong support and resistance zones.

Good Luck All