The Australian Dollar floundered during the local session and the GBP to AUD exchange rate was able to retain recent gains.
The ‘Aussie’ lost its appeal after the Federal Open Market Committee announced the further tapering of stimulus and hinted that US interest rates may be increased sooner than anticipated.
The Fed’s announcement buoyed the US Dollar but saw higher-risk assets like the ‘Aussie’ broadly decline.
Chairman of the Federal Reserve Janet Yellen issued the following statement; ‘Information received since the FOMC met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labour market indicators were mixed but on balance showed further improvement […] Fiscal policy is restraining economic growth [and] The Committee recognises that inflation persistently below its 2 per cent objective could pose risks to economic performance […] In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions since the inception of the current asset programme, the Committee decided to make a further measured reduction in the pace of its asset purchases.’
Yellen concluded; ‘The Committee currently anticipates that, even after employment and inflation are near mandate levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. With the unemployment rate nearing 6.5 per cent, the Committee has updated its forward guidance.’
In the immediate aftermath of the FOMC announcement the US Dollar approached a three-week high against a basket of its major rivals.
Overnight the Australian Dollar was little affected by the news that the Reserve Bank of Australia’s foreign exchange transactions were worth 369 million Australian Dollars in February, but the South Pacific currency did end local trading in a weaker position.
According to The Wall Street Journal, forex dealer Tony Darvall said this of the Australian Dollar’s performance; ‘Adding to the US Dollar strength was that stock markets fell which adds to that risk-off theme and the Aussie Dollar doesn’t do so well when equities fall. It’s very hard to say if the Fed’s small policy change will change the trending of the Aussie but it has definitely slowed it down.’
The Pound to Australian Dollar strength was also due to the fact that the Pound continued to derive underlying support from yesterday’s upbeat Bank of England meeting minutes, employment figures and UK budget.
As European trading got underway the Pound enjoyed a bullish relationship with several of its peers.
While today’s UK CBI trends report could have a modest impact on Sterling, GBP/AUD fluctuations may be limited ahead of the release of Australia’s conference board leading index and UK public sector net borrowing figures.
Australian Dollar (AUD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Australian Dollar,
,US Dollar, 0.9023,
Australian Dollar,,Euro, 0.6547,
Australian Dollar,,Pound, 0.5463,
Australian Dollar,,New Zealand Dollar, 1.0571,
US Dollar,,Australian Dollar, 1.1088,
Euro,,Australian Dollar, 1.5289,
Pound Sterling,,Australian Dollar, 1.8320,
[/table]
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