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Aussie Surges Up On RBA Rate Increase

eur aud 040610

Tuesday in late Asian deals, the Aussie registered strong gains against its major counterparts after the Reserve Bank of Australia lifted interest rates by 25 basis points to 4.25 percent. The aussie jumped to a new record high against the euro and a more than 9-year high against the New Zealand dollar.

Meanwhile, the Aussie recovered from an early Asian session's new multi-month low against the Canadian dollar and multi-day lows against the greenback and the yen. Subsequently, the Aussie rose to near a 3-week high against the US currency.

Australia announced its fifth rate hike since October and said borrowing costs would continue to rise as growth and inflation return to normal after the global crisis.

"The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today's decision is a further step in that process," RBA governor Glenn Stevens said.

The decision to tighten the policy screws had been expected by some analysts and market participants. The RBA has said consistently since late 2009 that its aggressive policy stance needed to be withdrawn, while last week it publicly vented concerns about fast-rising property prices.

Glenn Stevens was the first G-20 policy maker to raise borrowing costs twice this year. By contrast, the U.S. Federal Reserve Chairman Ben Bernanke said last month that the world's biggest economy "continues to require the support of accommodative monetary policies."

The Fed has kept its benchmark rate close to zero since late 2008 and the European Central Bank's rate is at a record low 1 percent.

In Asian deals on Tuesday, the Aussie soared to a new record high of 1.4548 against the euro. This may be compared to yesterday's close of 1.4636.

The euro resumed its downtrend against most major currencies today after reports rekindled concerns over Greece's fiscal woes, prompting investors to sell the common currency.

Market News International reported, citing senior government officials in Athens it didn't identify, that the Greek government wants to amend the accord for financial aid reached at an European Union summit held last month.

Traders sold the euro on fears that such a move may complicate Greece's efforts to return to fiscal health.

Also hurting the euro was a report in the Tuesday edition of the Financial Times that Greece aims to raise $5 billion-$10 billion in a debt sale in the United States later this month. The report added to investor concerns that Greece won't be able to sell its bonds sufficiently at home.

The Aussie has gained 9% against the euro thus far this year.

Bouncing back from an early Tuesday Asian session low of 1.3060, the Aussie strengthened to a more than 9-year high of 1.3152 against the New Zealand dollar by about 1:10 am ET. At present, the aussie-kiwi pair is worth 1.3145, compared to Monday's close of 1.3116.

The Aussie has advanced more than 2% against the NZ dollar after it plunged to near a 4-week low of 1.2832 on March 26.

The Aussie that slumped to a 5-day low of 0.9168 against the US currency at 12:05 am ET Tuesday strengthened thereafter and reached 0.9233 by about 1:25 am ET. This set the highest level for the Australian dollar since March 18. If the Aussie climbs further, it may likely target the 0.925 level.

The Aussie has appreciated 2.5% against the greenback from a 3-week low of 0.9004 hit on March 26.

The Aussie fell to a 4-day low of 86.13 against the yen before reversing its direction around 12:10 am ET Tuesday. The aussie-yen pair is currently worth 86.80 with 87.2 seen as the next upside target level. The pair closed yesterday's trading at 87.02.

The Aussie that declined to a new multi-month low of 0.9211 against the Canadian dollar in early Tuesday Asian deals recouped its losses after the RBA rate hike announcement. At present, the aussie-loonie pair is worth 0.9255, up from yesterday's close of 0.9238. If the aussie strengthens further, it may likely target the 0.932 level.

Encouraging economic reports from Australia also boosted the domestic currency.

ANZ Bank said that total job advertisements placed on the internet and on newspapers in Australia rose in March, while the results of the latest investor confidence survey conducted by the Australian Chamber of Commerce and Industry revealed Australia's business conditions continued to improve over the March quarter.

Traders are now likely to focus on the European session, in which the Euro-zone sentix investor confidence report for April has been slated for release at 4:30 am ET

The U.S. Federal Reserve is scheduled to release the minutes of its March 16th meeting at 2 pm ET.

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