"A lack of life outside the mining sector, is expected to keep economic growth below-trend until 2015, and at the same time a lack of wage growth is expected to keep inflation contained. The RBA may be inclined to cut interest rates again."
- Chris Tedder, Forex.com currency strategist
More than three decades ago central banks across the world used heavy handed tactics to smack currencies, making daily trading highly risky and unpredictable. Due to the market interventions even major crosses like USD/Deutsche Mark or USD/JPY were sparking moves or 2-3% in less than a minute. However, after George Soros deal that pushed British Pound from the European exchange rate mechanism, everything changed. Currently, policymakers are trying to devaluate their currencies with introduction of record-low interest rates. The RBA has cut its key refinancing rate by 2.25% since late 2011, becoming the biggest loser in the currency war. The decision to start tapering its stimulus programme made by the Fed in December, provided some relief to the RBA; however, according to Glenn Stevens, the currency is still at an "uncomfortably high" level. According to his projections, a level of $0.85 can be considered as a reasonable one, increasing bets of another rate cut. Moreover, the RBA can cut interest rates amid hopes it will deter yield-seeking investors.
During the last couple years the resource-rich economy enjoyed the prosperity that was based on the mining boom and this prosperity was not used productively. While economists claim the economy should simply adapt to a new growth model, foreign speculators are rushing to milk every last drop of profit from the mining sector.
© Dukascopy Bank SA