THE Australian dollar has seen it highest rally over the last week against the US Dollar, reaching 1.054 to the US dollar. It also hit a high of 0.65 to the British Pound.
This movement came largely on the back of the announcement by the US Federal Reserve of its new plan to stimulate the world’s largest economy. This third round of quantitative easing, or ‘QE3’, is a programme to expand open-ended asset purchases to the effect of $40 billion of mortgage debt a month. It is in effect increasing the money supply which adds downward pressure to the Greenback.
Ray Attrill the co-head of foreign exchange at NAB expressed his views that what the Fed has done will be sufficient to keep the US dollar weak and probably treading weaker in the near term. While this is the case, one would expect the Aussie to remain well supported near or even above these current levels.
The outcome of this week’s September policy meeting of Australia’s reserve bank will be crucial. The Reserve bank has warned that the strength of the Aussie over the last month despite the continued decrease in commodity prices is becoming problematic to growth in the Australian economy. Speculation persists that the RBA will consider further interest rate cuts in an attempt to ease the pressure caused by the strength of the Australian Dollar.
Market sentiment suggests that given the Fed’s QE3 rollout, the Australian Dollar will remain relatively well supported against its US counterpart.
Exchange Rates at 08.39, 17 September 2012
Composed by Monique Chapman of 1st Contact
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