The resilience of the local economy saw the Reserve Bank of Australia yesterday raise the benchmark interest rate for the fifth time in six meetings. Following on from comments made by RBA Governor Glenn Stevens last week, he once again stressed the importance of interest rates to return to neutral levels given “growth likely to be around trend and inflation close to target”. Last week Governor Glenn Stevens cited high house prices to be a prime concern making it necessary for interest rates to return to normal levels, with which is deemed to be around the 4.75 – 5 percent range.

By default, this saw the Aussie dollar rise over a cent in the ensuing hours of the release trading through 92 US cents and continuing an upward trajectory to highs of 92.9 US Cents overnight – also propelled by the FOMC minutes which indicated the Fed would continue to stay true to the “exceptionally low interest rates for an extended period” pledge. However, for the second consecutive meeting FOMC member Thomas Hoenig stated he no longer support the “exceptionally low” interest rate language, rather opting for a more relaxed tone of a low level of the federal funds rate for some time. Mr Hoenig cited a continuance of this language would enhance the risk of asset bubble developing. Investors now wait in anticipation for Fed Chairman Ben Bernanke to later this week for any further clues on the Fed’s stance going forward – taking into consideration last week’s positive economic news such as non-farm payrolls which showed the US economy created 162,000 new jobs in March, outstripping the previous month’s contraction of 36,000.

Overnight the Greenback was mixed against major counterpart with the latest Greece concerns weighing on the Euro falling back through US$1.34 to current levels of US$1.3385. In contrast higher yielding commodity currencies strengthened against the US dollar, notably the Canadian dollar which reached major milestone overnight reach parity against the greenback for the first time since July 2008.