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Daily News from Senior FX Analyst – Samuel Allen

The Royal bank of Australia held their interest rates last night amid speculation that they might raise again due to higher than expected inflation data. The move to hold interest rates was largely anticipated and didn’t affect the prospect for the AUD much at all.

The AUD/USD rate has risen over 10 cents since they have adopted their hawkish policy on rates and the GBP/AUD rate has dropped over 1 Dollar now since the end of 2008 to 1.7 GBP/AUD. The yield advantage still props up the Ozzy’s strength with carry trades still remaining very popular with city traders.

HSBC has announced a market beating result this month most of which has been generated by their emerging market operations. The rest of the banking sector have also benefitted from reflected glory with the whole FTSE rising 2.5 % overall. This has helped sterling to post a 5 month high against the Dollar, the rate of exchange is currently sitting at 1.5960 GBP/USD and still rising with good momentum, a break above 1.600 GBP/USD would prove to be very bullish for the pound overall.

The Swiss CPI figure has illuminated the trend for the safe haven economies (US, Switzerland, Japan) to be on course for some very depressive deflation with the American economy sitting very close to the 0% inflation figure and both other economies showing dropping inflation figures. As most economists will agree, inflation is bad but deflation is certainly worse and severe deflation is something North America will do anything to avoid and might well trigger a further expansion of quantitative easing to grease the economies wheels back into action. Some economists are speculating that they might inject up to 3 Trillion dollars into the economy over the next few years. One thing is sure, that where the Americans venture the British will not be far behind.

Thursday will see the BOE meeting to decide upon their interest rates, no change is expected. Friday will see the release of the non-farm payrolls figure from America; this data is watched by economists to gauge the health of the global economy.