RBA Caught Between Strong AUD and Housing Bubble

The Reserve Bank of Australia (RBA) will announce its interest rate decision on May 5 at 12:30 am EDT. The RBA has faced a constant battle to depreciate the AUD in order to remain competitive in global exports. Interest rate cuts and verbal intervention have been used pro actively by central bank Governor Glenn Stevens to keep the Aussie from rising higher as the interest rate is Australia is still an attractive 2.25 percent. The central bank held rates on the last meeting prompting economist to increase the probability of a rate cut in the meeting this month. The market is divided in its expectations from what once was an almost unanimous forecast of a rate cut in May.

The AUD/USD has been boosted by the rise in prices of iron ore and a struggling USD. The rate differential has given the Australian currency more demand along with the rise of commodities. The USD has regained some of the ground lost as the U.S. economy got a somewhat confident endorsement from the Federal Reserve. Central banks continue to drive the FX market and the RBA will be in focus as it announces its rate decision next week to be followed by employment and economic forecast data. This will be an interesting week for Aussie traders as data dependancy is on the rise.

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