Aussie Falls after Interest Rates Were Left on Hold

The Aussie fell against major currencies on Tuesday as Australia's central bank decided to leave its interest rates on hold. At around 5:43 am GMT, the U.S. dollar climbed 0.48% higher against the Aussie to stand around 0.9157. At the same time, the euro rose 0.36% to trade around 1.3036. The Australian economy is currently recovering from the Queensland floods. Together with global uncertainties, created by debt crises in the United States and the Eurozone, this was enough to persuade the Reserve Bank of Australia to leave its interest rates at 4.75%. Most analysts had predicted the move. At the moment, Australia's interest rates are still much above those in Europe and North America, which makes the Aussie an attractive investment. On Tuesday, the Australian economy produced mixed results. In June, building approvals fell once more by 3.5%. The June result is much above -7.9% recorded in May, which was revised to -6.3, but also some way below a 3% increase expected by analysts. On a yearly level, building approvals fell by 15.5% in June, down from a revised 13.3% decline in May. Australia's house price index is also continuing its fall. In the June quarter, the index fell 0.1% from the previous quarter, but most analysts had predicted a steeper fall of 1%. In the March quarter, the index declined 1.1%, which was revised from -1.7%. The latest data seems to suggest the central bank has been right to leave its interest rates on hold. Economic data is improving, but much of the data is still in the red. There are probably more bumps on the road to full recovery for Australia's economy and its central bank does not want to put more constraints on the country's recovery by raising interest rates. Debt crises in the United States and the Eurozone are not the only outside threats to the Australian recovery. It seems the worst is over in the U.S. as the two sides managed to reach a deal to raise the debt ceiling and prevent the world's largest economy from defaulting on parts of its obligations. However, the situation in the Eurozone continues to deteriorate as rating agencies continue to slash credit ratings of the Eurozone members. Perhaps more importantly for Australia, China's economy is starting to cool down. In July, China's PMI fell to 50.7 from 50.9 a month earlier. China has been working hard to prevent its economy from overheating and its efforts are starting to pay off. China is an increasingly important trade partner for Australia, primarily due to the Asian giant's insatiable appetite for raw materials. The Aussie should find some support in the latest commodity prices data. According to the Reserve Bank of Australia, commodity price index rose 0.9% in July, compared to the previous month. In June the index rose 1.7%. The rising commodity price index suggests the total value of Australia's exports may increase. On Tuesday, most of commodities were in retreat. Crude oil lost 0.82% of its value to trade around $94.47, while natural gas declined 0.12% to stand around $4.187. At the same time, copper traded around $4.403, or 0.07% below its previous close. Precious metals are an exception to the trend of falling commodity prices as gold rose 0.27% to trade around $1,625.95, while silver added 1.11% to its value to stand around $39.76. ACTION ITEMS:

Bullish:
Traders who believe that the prices of commodities will continue to rise, which should provide a boost to the Australian economy, might want to consider the following trades:

• Dow Jones-AIG Commodity Index Total Return ETN DJP is a long play on commodities. DJP may rise if the prices of commodities increase.

• CurrencyShares Australian Dollar Trust ETF FXA is a long play on the Aussie. FXA may rise if the Aussie appreciates.

Bearish:
Traders who believe that a slowdown in China, as well as debt problems in the developed countries, will bring down the prices of commodities and the value of Aussie may consider an alternate positions:

• PowerShares DB Commodity Short ETN DDP is a short play on commodities. DDP may rise if the prices of commodities decline.

• ETFS Short Australian Dollar Long US Dollar ETC ETF (SAD) is a short play on the Aussie. SAD may rise if the Aussie depreciates.

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