The Aussie dollar rallied 1% to $0.9994 this afternoon, ahead of the ECOFIN meeting. The market hopes that constructive news will emerge to help stem the eurozone crisis.
However, the Aussie dollar weakened earlier today after the government said it will slash spending by A$ 6.8 billion to deliver a surplus. This implies there aren’t any intentions to raise taxes but rather to reduce interest rates, which stands to depress the Aussie dollar. As a matter of fact swaps traders are betting that the RBA will lower rates by 159 basis points over the next 12 months, according to a Credit Suisse Group AG index.
A survey by the Commonwealth Bank of Australia revealed that the persistently high Australian dollar is forcing a significant number of firms to consider re-establishing their corporate headquarters. Separately, Fitch Ratings upgraded Australia’s long-term foreign-currency issuer default rating to AAA from AA+, while the Organisation for Economic Co-operation and Development (OECD) gave an upbeat assessment of the Australian economy, saying Australia will have the fastest growth rate in the developed world next year at 4%. That's more than double the 2011 growth rate of 1.8%, which was slowed by natural disasters including the Queensland floods. Australia isn’t immune to Europe’s woes, however, so if the situation in the eurozone continues to deteriorate then growth will suffer.