USA raises their rates and it acts like an interest rate cut in Australia!

The Australian dollar has dropped sharply against the US dollar after the US Federal Reserve raised its benchmark interest rate by a quarter of one per cent at its December meeting and flagged three more increases in 2017.

The immediate impact has been to weaken the Australian dollar, pushing it down the better part of a cent to 74 US cents – which means a little pricing pressure is added to imported goods and our exporters are made that much more competitive and/or profitable.

The Fed's well-telegraphed move early this morning is a key part of why our central bank has not cut its cash rate again despite inflation running well below its target zone and the economy contracting during the September quarter. RBA governor Philip Lowe has been happy to let US Fed chair Janet Yellen do the work for him. We're at the bottom of our own interest rate cycle.

Tony Morriss, an interest-rate strategist in Sydney at Bank of America Merrill Lynch, said Australia's central bank is likely to leave rates on hold, 'for an extended period' and the key factors to watch next year include the Aussie dollar and commodities.

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