Justifying the hype around in what has turned out to be the most important FOMC meeting this year, the importance of Monetary Policy within the US cannot be underestimated. Tumbling in a big way against its US Counterpart overnight an announcement by the US Federal Reserve that they could begin reducing bond purchases later this year sent higher the yielding asset tumbling. Shedding a full two and half cents following the meeting the Australian dollar slumped to its lowest level since early October 2010, a fall made even more dramatic given it was trading up above 103 US Cents in early May. Highlighting just how suppressed the Greenback has been, in the longer-term an improved US economy should only mean good things for the world’s reserve currency hence weighing on asset classes like the Australian dollar. This morning the Australian dollar buys 92.95 US Cents and given the expected release of Chinese manufacturing PMI this morning investors are set to remain on high alert.
Similar to its trans-tasman rival overnight the New Zealand dollar was sold off across the board. Triggering the move back into US Dollar dominated assets US Federal Reserve Chairman Ben S Bernanke said the Central Bank may begin to taper off bond purchases later this year. In what should come as a relief the RBNZ who have been wishing for a lower currency for months, a lower New Zealand dollar will at least allow domestic policy makers the ability to adjust interest rates independent of the underlying influence on the currency. Moving quickly from earlier highs of 0.8052 the sell off was abrupt as the Kiwi opens weaker this morning at a rate of 0.7899.
The Great British Pound could not keep pace with a rampaging Greenback overnight which attracted substantial attention following the US Fed’s announcement that bond purchases would be wound back by the conclusion of this year. Dominating FX flows overnight Ben Bernanke’s testimony which painted a prettier picture of the world’s largest economy than initially expected could now see real rates of return in the US rise form near zero as early as 2015. Tumbling to lows of 1.5448 the Sterling opens close to these levels at a rate of 1.5480. Despite its fall against the Greenback the Sterling is notably stronger against a weaker Aussie (1.6655) and Kiwi (1.9591).
Following one the most highly anticipated lead ups to a FOMC meeting in recent history, US Policy Makers did not disappoint overnight giving their first real indication yet that the pace of bond purchases would slow by the end of this year, bringing them to an absolute halt by around mid 2014. Whilst triggering losses across equity markets, 10 year bond yields moved to a 15 month high with the influence on the US dollar also significant. Highlighting just how significant last night’s announcements were, the Fed has held interest rates at a close to near zero since December 2008 whilst more than tripling its balance sheet to 3.3 trillion. In its first move away from stimulus since the onset of the GFC, a historically low Greenback has already started to show real signs of life. Moving from lows of 94.823 the USD/JPY was one of the biggest winners overnight as it opens stronger this morning at rate of 96.347. Also unable to keep pace with the US dollar the Euro is weaker by comparison this morning at 1.3293.
Source http://www.fxstreet.com/fundamental/market-view/daily-forex-analysis/2013-06-19.html
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