Yesterday, the Reserve Bank of Australia raised its overnight interest rate from 4.00% to 4.25%. This is the fifth increase in six months.

This decision was supported by the following factors:

Strong economic growth across Asia is boosting activity in Australia and an increase in levels of investment in its resources sector.

The labor market is recovering (as shown by the unemployment rate which fell back from 5.8% in October to 5.3% in February). This has led to an improvement in household wealth which is causing a surge in home prices.

Also, recent figures have revealed a return of inflationary pressure. According to the Melbourne Institute, consumer prices rose 0.5% in March while the annual inflation rate increased to 2.5% (from 1.9% in February).

After the RBA's decision to raise interest rates, the Australian Dollar strengthened against the US Dollar (0.9250) and the Euro (0.6800).


Investors will be focusing on the USD/JPY pair, as the Bank of Japan will communicate its statement of monetary policy (after the release of the Fed's FOMC minutes).