Tuesday, November 02, 2010

Aussie Is Now King Of Dollars

After having recently come very close, and later fallen back somewhat, the Australian dollar today achieved parity and is off this writing trading very slightly above the U.S. dollar, who in turn is trading slightly above the Canadian dollar. As a result, the Australian dollar is now for the first time since July 1982, the highest valued dollar in the world.

The reason for today's rally is of the interest rate increase by the Reserve bank of Australia (RBA). And the reason why the Australian dollar is going better than the others is that the RBA is gradually tightening monetary policy, while the Bank of Canada is more passive and the Fed is planning "quantitative easing".

How long the Australian dollar will remain strong depends in part of course on just how much the RBA will continue to tighten, and how large the Fed's "quantitative easing" will be. It also depends on how much the prices of Australia's mining exports rise-or decline.