4 days ago, the Reserve Bank of Australia raised rates to 4%. This move wasn't a big surprise and didn't get the same press as when the RBA was the first central bank to raise rates after the financial crisis in 2009. 2/3 of economists polled by Dow Jones expected the move. The RBA had stated before it would continue to raise rates as the economic recovery continued.
The Australian dollar seems set to continue its carry-trade fueled upswing it enjoyed throughout 2009. This time, however, the currency of choice is the yen, not the dollar. The rise of the Aussie dollar halted in December 2009 as the carry trade unraveled and the dollar started its recent run. The cause of this reversal was 1) fears on sovereign debt (which started with Dubai in late November and have continued with Europe) and 2) a Fed exit set to take inflation expectations out of the market.
The Australian rate increase will fuel a new carry trade. This increase will drive a new upswing in commodities. WTI oil is back up to $82/barrel, a clearly speculative position given current inventories. I look next to industrial metals. As the A$ increases, so will the price demanded for commodities (relative to other currencies).
