A long anticipated move by the US Federal Reserve has caused a significant rise in the Australian Dollar overnight, the local currency moving from levels around 1.0440 to touch highs near 1.0560 after Fed Chairman Ben Bernanke announced a third round of quantitative easing. The positive effect seen on the AUD/USD was two-fold; firstly the stimulus measures resulted in a solid purchasing of risk related assets as the outlook for the global economy improved off the back of the news. Secondly the measures will involve the direct injection of additional US Dollars into the system, thus serving to directly weaken the Aussie’s major trading partner. Consolidating just below 1.0550 this morning, markets will likely remain buoyant into the end of the week and an absence of local data will leave the Aussie trading alongside risk sentiment.
We expect a range today of 1.0480 – 1.0590
New Zealand Dollar
The New Zealand dollar opens 1.5% higher this morning, sitting above 83 cents against the Greenback for the first time in five months after the Fed announced a much anticipated third round of quantitative easing. After trading between 0.8200 and 0.8220 for much of the local session, eventual highs were reached near 0.8320 as solid bids for risky assets followed the FOMC statement. Yesterday’s events have also helped the Kiwi gain some ground back against its European counterpart, with the Kiwi dollar back buying 64 euro cents; ground was also claimed against the Australian Dollar and this morning sees the pair trading at 1.2690 (0.7880).
We expect a range today of 0.8250- 0.8340
Great British Pound
Events over the past few days has seen Sterling rally to fresh four month highs against the Greenback, yet fall to two month lows against the Euro. Overnight last night, Ben Bernanke capped off recent euro-positive news with an announcement of his own, a fresh round of QE. Global markets rallied immediately and the Greenback was weakened with Cable rising above 1.6160; however recent Euro strength continued and EUR/GBP traded to 0.8040 (1.2438). Locally, 10 year bond yields rose 11 basis points to 1.83 although the outcome was largely overlooked amongst all the excitement. This morning the Pound remains at similar levels already mentioned, yet lower against the risk-sensitive antipodeans; GBP/AUD has fallen to 1.5310 and GBP/NZD traded down to 1.9440.
We expect a range today of 1.5250 – 1.5400
The Euro moved above $1.30 against the Greenback for the first time since May 9 as the day after the ESM was given the all clear to aid in the euro-zone recovery, the Fed joined the party by announcing a fresh round of quantitative easing. Dubbed QE3, the central bank of the world’s largest economy will be initially buying $40bn per month of mortgage-backed securities aimed at assisting the housing sector, aiding economic growth and thus tackling stubbornly high unemployment rates. The key this time around is that should the initial amounts not be sufficient, the Fed can choose to increase the size of its purchases. With markets betting it could be third time lucky for the quantitative easing, risk was very much on the table and the Greenback was not only weakened by flows out of its perceived safe-haven status, but it was directly weakened as a result of further money being injected directly into the economy. Falling also against the Japanese Yen, the pair trade this morning at 77.50 and EUR/USD has settled back just below 1.3000 at 1.2985.
AUD: No data due for release
NZD: FPI m/m
JPY: Revised Industrial Production m/m
GBP: No data due for release
EUR: CPI y/y; Employment Change q/q