Testing the 1.0800 exchange rate once again, the Australian dollar is remaining relatively higher compared to yesterday following a better than anticipated decision by the Reserve Bank of Australia.  Finding support just above the 1.0700 late last night, the Australian currency rocketed higher against the dollar, now trading at 1.0793 or higher by 0.72%.

RBA central bankers yesterday decided to keep rates unchanged at 4.25%, bucking a majority of market expectations.  Analysts and traders alike were anticipating a reduction in the benchmark overnight cash rate by 25 basis points.  However, policymakers led by Governor Glenn Stevens saw an improvement in the global landscape – lending support for a stay on rates.  Previously the Reserve Bank of Australia had cut benchmark interest rates in both November and December – by 25 basis points each.

Although concerns still remained over the future of the Eurozone and its member states, policymakers highlighted the fact that progress and improvement had been made on that front over the last quarter.  Citing that “much remains to be done to put European sovereigns and banks on sound footing”, policymakers noted that “progress has been made”. The improvements have helped the global financial markets to calm about – even though “remaining skittish”.

In addition, central bankers noted that economic growth and confidence still remain solid in the Australian economy.  Noting that China’s economy had “moderated as was intended”, fundamentals continue to remain rather positive and robust for future growth.  This could lead to another year of expansion – following the a year in which the trade surplus soared to a record.  In 2011, Australian export volume supported a record A$19 billion surplus.

Nonetheless, policymakers additionally stated that “should demand conditions weaken materially”, the conditions would provide “scope for easier monetary policy”.  This statement has some in the market already anticipating a rate cut in the next two months, as opposed to coming in February.