Dollar rallies on US Fed statement

arrow, dollar, moneyThe Australian dollar has surged by two and a half US cents after the US Federal Reserve surprised financial markets with weaker American growth forecasts, before falling back.

At 0700 AEDT on Thursday, the local currency was trading at 77.86 US cents, up from 76.06 cents on Wednesday.

Five minutes later, it surged to a two week high of 78.46 US cents, a three per cent rise on Wednesday’s close, before falling back again to 77.86 by 0740 AEDT.

The Australian dollar added more than half a US cent within two minutes of the Fed’s Federal Open Market Committee’s statement early on Thursday morning, saying it would need to see an improvement in the jobs market before raising the federal funds rate.

While the Fed removed the word “patience” in regards to a possible rate increase, its downgraded growth forecasts for the American economy weakened the US dollar against a range of currencies, Western Union Business Solutions currency strategist, Steven Dooley, said.

“They threw a curve ball into the mix by first of all warning on US growth. They said US growth had moderated – that was a surprise to the market,” he said.

“This statement has either potentially delayed the point at which US rates will take off or it’s delayed the magnitude at which the Fed will raise rates by.”

The Fed also said it would need to be confident that inflation would move back to its two per cent target “over the medium term”.

“Massive moves – US dollar sharply lower; Aussie-US up three per cent,” Dooley said.

“It might be a bit of a short term blip.”

AAP

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