The Australian central bank caught the market off guard yesterday with an unexpected decision to keep interest rates steady. Economists predicted the Australian interest rate would rise 0.25 basis points to 4.00%. Instead rates will remain for the time being at 3.75%. The decision to keep rates unchanged may allow the Australian economy to grow faster. However, keeping interest rates lower may also bring about unwanted inflation.
The surprise move was a positive for the AUD/USD as the pair climbed to a high of 0.8881 from an opening day price of 0.8801. The currency pair rallied 28% last year as the Australian central bank raised interest rates 3 times in the previous year. The rising Aussie dollar has weighed on the earnings of many Australian exporters. A stronger currency makes an exporter's goods more expensive in the local currency.
The next policy meeting for the central bank is scheduled for March 2nd. There the central bank is again forecasted to raise interest rates to 4.00%. Traders should be cautious as trading on Australian interest rate moves havs proven to be unpredictable.