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Dollar rises on Fed comments

 

dollar, coins, moneyThe Australian dollar is higher after the US Federal Reserve said economic growth would be slower than it previously expected.

At 0700 AEST on Thursday, the local unit was trading at 94.04 US cents, up from 93.36 cents on Wednesday.

The Fed expects growth to be just 2.1 per cent to 2.3 per cent this year, down from 2.8 per cent to 3.0 per cent in its last projections in March.

Slower growth would mean the Fed may delay interest rate increases, which would weaken the US dollar and support the Australian dollar.

BK Asset Management MD, Kathy Lien, said the Fed disappointed the market even though it did not indicate any change to the tapering of its economic stimulus program,

“(Fed chair) Janet Yellen acknowledged the improvements in the economy, indicated that the central bank is discussing tools for normalising monetary policy and said that there would be a considerable period of time between the end of quantitative easing to the first rate hike,” she said.

“In other words, unlike other central banks that have recently expressed their desire to become more active, the Fed remains comfortable with their current course and has no desire to alter the market’s expectations.

“While we don’t expect a significant sell-off in the US dollar, the greenback should extend its losses against the currencies of central banks who are looking to tighten.”

AAP jc

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