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Australian rates to keep rising near term but pause mid-2010

The Reserve Bank of Australia (RBA) raised its cash rate to 3.50% today, as expected. We still expect another hike in December but this is now not much firmer than a 50:50 call. The bigger picture is that we believe the economy in 2010 will not be as strong as the authorities anticipate. Therefore, the tightening to come should end up being less aggressive than the markets currently expect.

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