Dollar lower on US economic strength

The Australian dollar is being weighed down by strength in the greenback amid renewed expectations that the US Federal Reserve will begin tapering its economic stimulus program soon. 239

At 0700 AEST on Tuesday, the local unit was trading at 91.49 US cents, down from 91.80 cents on Monday.

The US Congressional Budget Office is forecasting that the annual deficit will be $670 billion when the budget year ends in September, compared with last year’s deficit of $1.09 trillion.

It would be the first time in five years that the gap between spending and revenue has been below $1 trillion.

BK Asset Management MD of FX strategy Kathy Lien said the US dollar ended the North American trading session higher against all major currencies due to renewed expectations of Fed tapering.

“US dollar strength and Fed tapering were the primary catalysts for the move lower,” Lien said.

Lien said the July US retail sales report being released this week would be exceptionally important in indicating whether the Fed would begin tapering its bond-buying program sooner rather than later.

“Consumer spending is the backbone of the US economy but this month the amount that retail sales increases plays a particularly important role in the Fed’s monetary policy plans,” she said.

“With only five weeks to go before the September Federal Open Market Committee (FOMC) meeting, every piece of data counts.”

AAP

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