The Australian dollar is back above 80 cents for the first time since 2015.
“We saw the Aussie dollar rocketing as the US dollar collapsed,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
“The dovish statement from the US Federal Reserve doused the hope of recovery for the US dollar,”
“The greenback’s collapsed overnight provided a further boost to the Aussie dollar,” he added.
According to him, Any chance of a US dollar recovery has been postponed for now.
That’s the key takeaway from the Fed statement and market price action overnight and since the announcement.
“Clearly we need to see a material improvement in US data flow or a deterioration in the flow of data in other jurisdictions now that the Fed is out of play on the rate hike front for the next few months,” McKenna said.
In the meantime, the Aussie dollar’s move above 80 cents capped off a strong recovery from yesterday’s lows.
The Aussie came under pressure yesterday on the back of the combination of lower than expected headline inflation and RBA Governor Philip Lowe’s speech.
“But the Aussie dollar bulls were ready to step back in and push the Aussie higher as they were waiting for the US Fed statement,” McKenna said.
According to McKenna, the dovish statement from the US Fed signals a change and could mean that the current US dollar weakness is really based on the weak US economic data.
“What’s apparent is that the market was looking for a more hawkish tone from the Fed,”
“A focus on the strength of the labour market and what that means for growth rather than the obvious concern about the lack of inflation and the handbrake that places on further rate hikes,” McKenna said.
The Fed said, “in the “near term” inflation will “remain somewhat below 2%” but “stabilise around the Committee’s 2 percent objective over the medium term”.
Given the current environment, McKenna said when the Fed has a bias to normalise rates, “it means they have to pause and see how the economy and inflation develop.”
“And that is the message currency traders took from the FOMC statement this morning. Which is why the US dollar was sold and the Aussie dollar rocketed,” McKenna said.”
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