The Australian dollar is set to surge against the dollar after the Reserve Bank of Australia announced it would keep interest rates unchanged at a record low for another year.
The dollar hit a six-month high against the greenback on Monday, hitting a record-low 1.23 per dollar as investors looked to get their money out of the country.
The Australian dollar has been hitting record highs as the global financial crisis continues, which has made it a popular investment vehicle for investors.
But there are some who believe the Reserve’s move may signal a return to more normal interest rates for the dollar, as markets react to the economic data.
“We expect the [reserve] to keep its target, so we’re likely to see the dollar go higher over the next few months, and that’s likely to have a more positive impact on the broader Australian economy,” economist Rob O’Brien from Capital Economics told ABC News.
Mr O’Briens prediction is in line with the views of other economists, including Professor Michael Breen from Monash University.
“I think the dollar is probably going to go higher in the next couple of months, so it will be a pretty strong rally and we will see a return of interest rates,” Professor Breen told ABC Radio National’s The World Tonight program.
“It will certainly be the best investment opportunity of the year.
The Reserve has done its job.”
Professor Breen said it was not clear how much longer the Australian dollar would rise and what the impact would be for other currencies.
“The longer the interest rate stays at that level, the weaker it will feel, so there will be less incentive for the other currencies to go up, so you will see the Australian dollars fall further,” he said.
“So I think it’s probably a bit of a wash for the AUD over the long term.”
The Reserve Bank’s decision to keep interest rate at a lower level of 1.25 per cent, for the next two years, was welcomed by the Reserve Board, the Australian Bankers Association and many other economists.
The central bank’s decision is expected to be met with support from other major economies, including the United States, Canada and Japan.
“This is a really significant step forward for the Australian economy, and we look forward to the Australian Federal Government making further announcements in the coming months,” Reserve Bank Governor Philip Lowe said in a statement.
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