Despite the lacklustre performance of the national cricket team, the Australian dollar pushed up against the US dollar, moving back towards the parity that it reached a month ago.
The increased strength of the Australian dollar may be due to some increase in risk appetite arising from the extension of US tax cuts agreed by Congress, which has helped to outweigh the negative effect of the Reserve Bank of Australia’s (RBA) decision to hold interest rates steady at 4.5%. The RBA also signalled that rates may remain static for some time to come, with inflation expected to remain contained ‘over the next few quarters’. The main driver of the Australian currency is now likely to be the eurozone crisis, as wariness among investors leads to increased risk aversion. RBC commented that the RBA will be ‘sidelined until the middle of 2011’ as demand for higher-yielding assets is negatively affected by worries about a eurozone break-up. Until moves to a proper resolution of the crisis take shape, the Aussie will be batting on a sticky wicket for some time to come.