After Fed Chairman Ben Bernanke delivered a speech in Boston, Australia’s dollar is back up over 92 cents.
At the time of writing it was 92.4 US cents, after hovering just above 90 cents for much of the past week. Click here for live prices.
“The Australian dollar has strengthened quite substantially, and it’s been directly related to the US dollar,” ANZ currency strategist Andrew Salter told Fairfax.
“The US dollar has weakened substantially following [US Fed chairman Ben Bernanke] Q&A and a speech, and also following the release of the Fed minutes.”
In a Q & A session after the speech, Bernanke struck a decidedly doveish tone, sending investors running to buy US Treasury Futures in after-hours trading.
His remarks help to clear up the confusion that has gripped the bond market in recent weeks.
The gist is this:
Just because the Fed may begin tapering soon, interest rates will still be pinned at current ultra-low levels for a long time.
Bernanke said that the unemployment rate – a key indicator that will determine the future path of Fed monetary policy – probably understates the weakness in the U.S. labour market.
That the onset of tapering should not be taken as a sign of an imminent rate hikes is something that the Fed has communicated in various ways, but has not been made this cogently or forcefully.
Two other points that Bernanke really drove home hard:
- The 6.5% unemployment threshold is not a trigger for rate hikes, and the Fed could still keep rates at basically zero for quite some time after the economy hits that level
- The rise in rates that have come about lately represent a tightening of financial conditions, and to the extent that this rate rise threatens the economy, it will be addressed
Bottom line: No rate hike in the US for a long time, and the interest rate spike is of some concern to the Fed.
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