Aussie rises as central banker cools rate-cut speculation
FRANKFURT (MarketWatch) — The dollar weakened slightly against most major rivals Friday ahead of Federal Reserve Chairman Ben Bernanke’s much-awaited speech at Jackson Hole, Wyoming.
The dollar index DXY -0.26% , which measures the greenback against a basket of six currencies, edged down to 74.007 versus 74.262 in North American trading late Thursday.
All eyes are on Bernanke’s speech due to be delivered at 10 a.m. Eastern time Friday, in Jackson Hole, Wyoming.
Bernanke used the forum last year to signal a second round quantitative easing, or QE2, which sparked a rush into equities and other assets perceived as risky.
“Bernanke will meet a pretty nervous market, as the turbulence on the stock markets illustrates,” said Lutz Karpowitz, currency strategist at Commerzbank. “It is becoming increasingly clear that [the euro] will come under pressure [versus the dollar] in case of a rise in risk aversion. We assume that those who had hoped for a clear announcement of QE3 on the part of Bernanke will be disappointed.”
The euro EURUSD +0.22% rose to $1.4427 from $1.4379 in North American trade late Thursday, while the British pound GBPUSD -0.05% rose to $1.6314, from $1.62870.
The Fed’s earlier iterations of quantitative easing, a strategy that centers on the creation of new dollars, put the greenback under pressure.
Given the current state of expectations, “it is now possible that simply listing a range of potential future policy options without explicitly ruling out, in particular, additional QE, and which is indeed what we expect, will be considered worthy of a positive risk-market reaction,” strategists at BNP Paribas said. Read more on what to expect from Bernanke.
Against the Japanese yen USDJPY -0.97% , the dollar traded at 76.95 yen, compared to ¥77.57 late Thursday.
Japanese Prime Minister Naoto Kan confirmed Friday that he is resigning as leader of the Democratic Party of Japan, clearing the way for the election of a new party leader who would become the new prime minister. A party election is expected Monday.
Meantime, in Australia, the Reserve Bank governor Glenn Stevens cooled speculation of an immediate interest-rate cut, which gave the local currency a boost. The Australian dollar AUDUSD +0.62% recently traded at $1.0497, a gain of 0.5%.
“The market is still heavily favoring the Reserve Bank of Australia to embark on a rate-cutting cycle. However, thus far the rhetoric from the central bank is at odds with that view,” said Tim Waterer, senior foreign-exchange dealer at CMC Markets in Sydney.
“With the Reserve Bank evidently not trigger-happy with their major tool of monetary policy, there is still an outside chance that we could in fact make it to year end without a rate cut, with the large caveat being that the worst of the global markets selloff has already come and gone,” he said.
