Currency Update: The AUD has fallen below USD 0.9300 for the first time since September 2010 after US Federal Reserve Chairman Ben Bernanke announced that the US Central Bank’s stimulus measures would end in mid-2014. The FOMC statement made no direct reference to scaling back on the current pace of Fed balance sheet expansion, but the revisions to the FOMC’s central tendency forecast for the unemployment rate put markets on notice as to when the process of ‘tapering’ could begin. Bernanke made it clear that based on the latest FOMC forecast, the Fed expected to start scaling back monthly bond purchases before the end of the year, and to cease net new bond buying completely by the middle of 2014. Market reaction to the FOMC outcome and press conference has been fierce, with the AUD/USD dropping 2% to below 0.9300. The moves were underway before US Treasury yields broke up out of the prevailing ranges (10-year bonds now trade at 2.35%). The AUD was sold off more than other currencies, as foreign investors brace for more potential Australian interest rate cuts. A weaker local currency is good for exporters, manufacturers and tourism, who have struggled with the high AUD. Given the sharp slide in AUD/USD back through last week’s 0.9325 low, forecasts are under review (again) for further downgrades. Ahead of this, exporter buying and institutional hedging is likely to provide significant support and at least slow downside progress. Key event this morning is the China HSBC ‘flash’ manufacturing PMI, last at 49.2 and expected to show a small rise to 49.4. Anything worse than this risks fresh downward pressure on the AUD and upward pressure on USD/Asia FX rates in general. The RBA’s monthly FX transactions data for May are unlikely to show anything other than routine FX activity last month. Today’s Forecast Range: USD 0.9200 - 0.9350.
Posted on: Thu, 20 Jun 2013 00:10:53 +0000