Posted October 07, 2009
The Australian dollar rose as the benchmark interest rate was increased to 3.25 percent. The UK pound fell against the US dollar for the fifth day. The US dollar fell against the Japanese yen.
The Australian dollar rose to a 14 month high against the US dollar reaching 89.25 US cents per Aussie. There has been speculation for a week that the central bank would probably increase interest rates before the end of the year. Yesterday the central bank voted to increase the rate by 25 basis points. This means the current Australian interest rate is at 3.25 percent.
Australia is the first major nation to raise its interest rates making it the first country to begin an exit strategy.
The US dollar is continuing to weaken generally across the board. It fell against the Japanese yen to 88.35 and against the Canadian dollar to C$1.0566. The US interest rates are expected to remain near zero until well into 2010. Investors holding US dollars are seeking higher yields as the economy grows stronger and are expected to move away from safe haven assets.
The Dollar Index rose to 76.384 though it is expected to resume its fall. The US dollar fall is partly due to the fact global nations have committed to eliminating economic imbalances. This will equate to less reliance on the US dollar. It also means countries with large trade surpluses will have to find new markets for products.
The New Zealand dollar also rose to 73.42 US cents as commodity prices increase.
US dollar strengthened against the US pound to $1.5899. The US dollar is being closely watched as the US economy continues to struggle to keep the fledgling signs of economic growth intact. It had been predicted the US would be one of the last economies to emerge from the recession. This fact coupled with the global efforts to rebalance economic trade are putting downward pressure on the dollar.
For now the European common bank and the UK Bank of England are planning on keeping the interest rates at their historically low rates also.
Gold prices are rising rapidly as the US dollar weakens. Gold rose to $1,043.78 per troy ounce and some believe it will continue to rise to $1,500 an ounce within the next 12 months. Investors are buying gold to protect their profits.
Inflation is expected to accelerate as time passes. The price of gold has risen by 18 percent this year.
Slovenia appears to be unable to meet Economic Union rules concerning budget deficits. The country’s current deficit level is at 5 percent of the GDP. Economic growth is expected to be extremely slow and the country will be unable to bring the deficit back into line before 2012.
The Slovenia Finance Minister Franc Krizanic had this to say about the matter. “There will be very moderate or slow growth. If this forecast is right, we will also have a relatively high budget deficit next year. With 1 percent growth, we couldn’t go very fast to balance the budget. It would be senseless. It would cause political turmoil and a decline in GDP.”
This has been a rough 12 months on every nation around the world. Though no one comes right out and says it, the plans for reducing reliance on the US dollar are connected to the fact the US initiated this global recession. The UK recently reported the Bank of Scotland was on the verge of collapse a year ago and its collapse would have threatened public safety. No country wants to ever go through this again.