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RBA goes aggressive with rate hikes

For the first few months of the year the Reserve Bank of Australia was hiking its interest rates left and right as a result of rising prices in Australia, leaps in employment and consumer confidence data, and strong commodity demand from China. In a span of three months, the RBA pushed its cash rates from 3.75% to 4.50%. Talk about being ahead of the pack!

Debt crisis worsens and spurs risk aversion

Near the middle of the year, the debt crisis in the euro zone started getting out of hand. Not only did Greece get its government credit rating downgraded to junk status, it also had to accept a bailout package from the European Union and the European Central Bank.

There were also talks of the debt crisis spreading to the other European nations like Spain and Hungary, so investors held back from holding high-yielding currencies like the comdolls. To add insult to injury, commodity-lovin’ China also tightened its pockets in anticipation of weak demand from the troubled Western economies.

Fed’s QE talks and strong economic data boost comdolls

Good news started popping up after Greece accepted the bailout package and the European banks passed its stress tests. Positive economic reports were seen from the euro zone, the commodity-related countries, and even China. Even Australia went back to printing healthy employment and inflation numbers. The RBA held back from raising its interest rates until November, while the RBNZ started hiking its cash rates.

The demand for the comdolls accelerated around August when talks of another round of quantitative easing in the U.S. circulated the markets. The anti-dollar movement increased the appeal of higher-yielding currencies, and boosted the Aussie and the Loonie to parity against the Greenback.

Economic uncertainties and debt concerns drag comdolls lower

Late in year, the European debt crisis came back in fashion, this time taking out Ireland and threatening Spain and Portugal. China also started making moves to curb its economic growth, and other major economies like the U.S., Japan, and the U.K. were all wrestling with their own challenges. These recurring uncertainties caused a wave of risk aversion that kept the Aussie and Kiwi at bay.

Overall, it was a great year for the Australian Dollar in 2010, but will it continue in 2011? As always, it’s hard to tell where currencies will be year-to-year with surprise news or economic changes coming at any time, but if we continue to focus on growth, potential interest rate changes and raw material demands from Asia, we should be able to gauge any trend changes early and make good trades…stay tuned!