Forex: AUD/USD to 3-month high, after unexpected ‘’no taper’’ decision

on Sep 19, 2013

**, Thursday 19 September:**

Yesterday’s FOMC decision to postpone the tapering announcement shocked market observers, which were widely expecting a $10-15 billion reduction to the pace of quantitative easing. As a result of the downbeat verdict the US dollar reported its biggest one-day slide in more than two months and the AUD/USD soared by 1.3 percent. The Committee’s projections for GDP growth in 2013 and 2014 were trimmed lower and further hammered the greenback. The FOMC also released a more dovish forecast for the Fed funds target rate than June’s (see chart below). The median prognosis for the overnight rate in 2016 of 2.0 percent was publicised for the first time and came out below the markets’ prognosis for 2.25 percent.

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At the post-statement press conference, Fed chairman Ben Bernanke emphasized that the combination of a slowdown in payroll growth and the disinflationary tendency in the US encouraged the FOMC to postpone tapering for now. The head of the US central bank underlined that ‘’asset purchases are not on a preset course’’ and said the FOMC may not consider raising the Federal funds rate until the jobless rate is “considerably below” the 6.5 percent threshold. Bernanke revealed that the Committee is considering adjusting the Fed’s forward guidance by adding an inflation ‘’floor’’. Price increases in America have been stubbornly below the Fed’s target of 2.0 percent and the FOMC worries that tapering could create deflationary pressures.

According to analysts from Australian and New Zealand Banking Group (ANZ), the surprising decision by the Committee could mean that ‘’we may be some months off tapering’’. Economists from ANZ maintained their view that the FOMC will not raise the Fed funds rate until mid-2015. The interpretation of the bank is that ‘’the US dollar is likely to continue trading very poorly in the very short term’’ and the AUD/USD could test 0.9670. The research team from ANZ adds that greenback strength may return once American economic data improves and as ‘’we approach the December FOMC meeting’’, which is the current market consensus for the start of tapering.

The aussie will also want to factor in today’s release of US Jobless Claims due out at 13.30 BST, with forecasts for a significant increase of Americans seeking first-time unemployment benefits by 39,000 to 331,000.
US Existing Home Sales data for August is scheduled for release at 15.00 BST, with the median economists’ estimate for a slowdown to 5.25 million, well below July’s 5.39 million as a result of the higher US mortgage rates.
Currently the AUD/USD is changing hands around 0.9508, down 0.12 percent intraday.


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