WSJ:Australian Dollar Up Late On Fed QE Expectations
By ENDA CURRAN
SYDNEY--Signals that the U.S. Federal Reserve may again be inching closer to further policy easing helped lift the Australian dollar versus its U.S. counterpart Thursday even as more bad news emerged on China's economy.
At 0600 GMT, the Australian dollar was at US$1.0518 from US$1.0439 late Wednesday and at Y82.6115 from Y82.77.
Those gains were sparked by minutes from the Federal Reserve's August policy meeting which spelled out that it may need to resume buying bonds or other securities to depress yields and help promote lending into the economy, a policy known as quantitative easing.
Such a move has a weakening impact on the U.S. dollar and is generally viewed as bullish for commodities.
For now, traders will need to wait until a keynote speech by Fed Chairman Ben Bernanke next week for further guidance.
"The Fed has set the bar very high for not doing QE, highlighting that incoming data would need to point to a substantial and sustainable strengthening in the pace of the economic recovery," said BNP Paribas strategists.
In Asian trading the focus was on a preliminary gauge of manufacturing activity in China which fell to a nine-month low in August.
"Commodity currencies got off to a stellar start on the back of renewed speculation the Fed would turn on the printing press again, before a very poor flash manufacturing PMI figure out of China reversed price action," said Christ Tedder of Forex.com.
The preliminary HSBC China Manufacturing Purchasing Managers Index fell to 47.8 in August, compared with a final reading of 49.3 in July, HSBC said.
That saw the Australian dollar weaken, though the unit recovered some of those losses later.
"The AUD remains vulnerable to weaker, more so than stronger, Chinese data," said Emma Lawson, currency strategist at National Australia Bank.
Manufacturing activity will remain the focus overnight in Germany and the euro-zone flash PMIs are due, both of which are market moving and will likely impact the Aussie dollar.
"If Germany's economy continues to soften, and expectations of an ECB easing next month rise, then EUR/USD may see some profit taking," said Lawson. The move could further bolster the Australian dollar against the single currency.
