• Aussie, Greenback fails to gain traction despite RBA spruiking.
• RBA hikes the cash rate 25BP.
• Recent data is bullish for the local economy.
• The Pound takes a battering.
• The British, Europeans and Americans present a carry-trade/risk aversion trade off.

The RBA was in strong form last week with Governor Stevens and Co. in full swing dance leading into yesterday’s rate decision. The RBA appeased the market with a 25BP rate hike (4.00%), however the immediate gains in the local currency were modest. This was attributed to the commentary that accompanied the rate decision. The market stance before the rate decision was tentative at best, however the shine was definitely taken off the rate increase after an accompanying statement said that inflation was now “consistent” with targets for this year.

Data-wise, Company Gross Operating Profits were particularly strong this week at 2.2%, whilst Retail Sales (1.2%) had a strong recovery after January’s dismal figure. Export prices made modest ground with a slightly better than expected figure of -9.7%.

Australian GBP buyers have been delivered a windfall with the pairing currently trading at the highest levels in more than 25years. This is partly attributed to a sizeable M&A deal between Prudential in the UK buying a USD backed investment. As Prudential hedged their currency exposure the hedge funds weakened the pound by shorting the currency in anticipation of the sizeable transaction. Properties are now cheap in Notting Hill and flights from Australian airports to the area are reportedly full. Equity markets were given a shot in the arm after the M&A deal, which is also positive for the risk appetite linked local currency.

The current woes for some of the smaller economies in the Eurozone, the soft position in the UK and the US presents a trade-off between investing in higher-yielding currencies like the Australian dollar and remaining invested in safe haven currencies. Currently the interest rate differential looks to hold firm, whilst Federal Reserve Chairman Ben Bernanke last week described a “nascent” recovery that will require “exceptionally low levels of the federal funds rate for an extended period”.