Australian Central Bank Keeps Interest Rate Steady

The Aussie is plummeting in forex trading on the currency market today, thanks to the decision made by the Reserve Bank of Australia today. Many analysts and forex traders expected the RBA to increase the rate in order to keep a lid on inflation. The decision to hold rates steady was a shocker -- and one that has speculation flying that maybe Aussie growth has been overrated.

As a result, the Australian dollar is plunging in currency trading, collapsing quickly as forex traders head elsewhere. Indeed, the Aussie lost 100 points to the U.S. dollar right after the decision was announced.

GFT's Boris Schlossberg offers some insight in FX360 as to why Australian monetary policy is looking for caution:

In choosing to err on the side of caution, the RBA was clearly concerned with two key factors – the possibility of tightening by the PBOC and the nascent signs of softness in the Australian housing market. As we noted earlier, “monetary authorities in Canberra are clearly concerned about the prospect of tightening from the China, judging that any such move from the PBOC would naturally temper economic activity in Australia. Due to its geographic proximity, Australia has been the biggest beneficiary of China’s torrid growth and will therefore be the most vulnerable economy to any slowdown from Chinese demand.”

Perhaps it will seem like a prudent move, once we see how things play out in China.

Greece Gets Ready to Make Serious Reforms

Greece has announced a reform package that includes higher taxes in order to try and get the country back on the right track fiscally. Euro zone leaders have applauded the efforts, and are now trying to figure out how to best support Greece in its efforts.

GFT's Boris Schlossberg reports in FX360 on the situation with regard to Greece:

As of now it appears that Greek authorities are making a serious effort at reform, but the social costs of such moves could prove exceedingly painful if growth in the region does not accelerate. The combination of higher taxes and lower wages is unlikely to be tolerated by the populace for long and could result in massive political backlash, if it triggers a severe recession in the country.

EU authorities must walk a fine line between enforcing the proper fiscal discipline on Greece in order to ensure the credibility of the stability pact while at the same time avoiding the draconian measures that would radicalize the Greek populace and turn them against EU membership.

It's a fine line indeed (as Obama is finding out as he prepares to raise taxes), and the euro is still showing weakness today in forex trading. On the currency market, the euro continues to fall against the U.S. dollar, as equity markets struggle in Europe and forex traders wait to see how things go with Greece.