Originally posted at forexfactory on Jun 7, 2010
As a general rule, the currency market doesn’t give a crap about interest rate increases when stocks are falling by a few % each day due to global growth/Europe debt/double dip concerns, causing a flare up in risk aversion which leads to the USD and JPY being on a bid tone.
Now if the RBA signaled they were going to hike at the next meeting and at the next several meetings, it will help to support the AUD/USD, but if stocks keep falling and risk aversion is high, the bullish order flow generated by the increase in interest rates will be met with a whirlwind of macro/real money sellers, with the end result being AUD/USD going down, just not as much as before because the interest rate differentials would encourage some bargain hunter bids to slow the descent.
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