Suggestions that interest rates could rise as early as
next week have pushed the exchange rate to a six-month high, trading this
morning at US75.54 cents. The dollar has risen 5.6% this month, and
it is looking likely that it will be the highest monthly gain in two-and-a-half years.

The exchange rate was given a further boost with Fed
Reserve Chairman Ben S Bernanke suggesting that the US central bank may pause in its
cycle of interest-rate increases, making Australian assets more
appealing.

The higher than expected inflation result also impacted
upon the bond market, with the Australian government 10-year bond yield
increasing 11 basis points to 5.72%, its highest level since March
2005.

As reported in the AFR,Commonwealth Bank chief economist Michael
Blythe said that “a combination of factors pushed Australian bond yields up.
There was the usual lead from off-shore and the inflation data gave it a nudge
along… the market is (also) concerned about the possibility of a near-term rate
rise by the RBA.”

Look for Henry’s advice to the board of Reserve Bank on
Tuesday morning.

More reading at Henry
Thornton.