Parity Down-Under - The Reserve Bank of Australia again surprised the markets - during its last policy meeting the RBA refrained from raising rates, this time they surprised the markets with a rate hike of 25 basis points to 4.75% as a pre-emptive strike against inflation. The move powered the AUD past parity and to a 28-year high against the USD as interest rate differential between Australia, where rates are rising, and the U.S., where the Fed is widely seen as easing policy further, continue to rise in Australia's favour. Also, the RBA's statement indicated that it wasn't finished raising rates. This should not come as a surprise because Australia was the only western country that did not go into a recession during the credit crises of 2007 to 2009. In Europe, the Euro was up against the USD as today's U.S. midterm elections and tomorrow's Federal Reserve monetary policy announcement are perceived to be USD negative. The Euro was also helped by strong German PMI numbers. Meanwhile in the UK, the GBP was down after a report showed U.K. construction grew at the slowest pace in eight months. In Asia, the Yen was down against the USD as the market remained wary of intervention, especially after Finance Minister Yoshihiko Noda warned once again that the government would take "decisive action" to halt the Yen's rise if needed. In the U.S., all eyes are on today's midterm elections and tomorrow's Federal Reserve monetary policy meeting. The Republicans are expected to take over the House of Representatives but fall short of capturing the Senate. The stronger the Republicans do the more they will be able to curtail President Obama’s agenda. As far as the Fed goes, the market is expected a new round of asset purchases dubbed QE2.0 and the only uncertainty surrounds the scope and pace of the program. In Canada, the CAD hit its highest level against the USD in more than two weeks getting the market excited about parity once again, especially after Australia's unexpected interest rate rise and the movement of the AUD to parity with the USD. However, keep in mind that Australia's RBA is hawkish while the Bank of Canada has be acting more dovish in order to curtail the CAD's strength. Also underpinning the CAD is a possible deal to buy Potash Corp., a fertilizer giant and one of Canada's biggest companies, by Anglo-Australian miner BHP Billiton. If the $39 billion hostile bid goes through, the CAD could go higher as many Canadian shareholders convert their USD payouts back to the domestic currency.
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