Australian Dollar Outlook 04/11/2010
Australia: US dollar selling is once again the name of the game following the overnight announcement from the US Federal Reserve of their intentions to pump more money into the US economy.
The move was largely in line with expectations and the higher yielding currencies, such as the AUD and NZD, continue to gain on the widening interest rate differentials.
The AUD in particular has had a strong rally this week following the Reserve Bank's surprise hike in official interest rates on Tuesday.
This morning we have seen the local unit rally to a new post float high of USD1.0065. On the cross rates we are generally higher as well, with AUD/JPY gaining 1.1% to trade above JPY81.50.
After having now recorded a decent break through the parity level, expect the AUD to be well supported throughout today's session with further moves to the topside likely over coming days.
Local data releases today include Retail Sales with markets expecting a slight increase in monthly sales. Should the data print on the strong side, AUD may look to test USD1.0100.
Major: The US Federal Reserve announced that it would buy $US600bio of Treasuries between now and June 2011 in an attempt to try and boost a lagging US economy. With the unemployment rate stubbornly stuck at close to 10% and inflation low, US policy makers are desperate to try every available avenue to encourage economic recovery.
The Fed stated that the economic recovery is "disappointingly slow" and reiterated its intention to keep official interest rates low for an "extended period".
After the announcement the USD fell against most of its major counterparts. Given the sustained quantitative easing measures the Fed is pursuing the USD is likely to remain weak for quite a long period of time. Both the BoE and the ECB are due to announce their rate decisions tonight and it will be interesting to see how they react to the Fed's latest measures.
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