By JAMES GLYNN
The Australian dollar retreated from a 3-day high in Asia Wednesday as traders braced for another unpredictable speech by the head of the U.S. central bank.
U.S. Federal Reserve Chairman Ben Bernanke will give a semi-annual testimony on the economy to Congress later in the global day. His comments on the U.S. economic outlook and the Fed's commitment to economic stimulus have the potential to whip global markets into a frenzy.
"This comes in the midst of an unusually volatile period for Federal Reserve communication, as the signals have not always been clear and consistent," said Nomura currency strategist Martin Whetton. "Given this record, it is hard to be confident about what this next round of upcoming communication may bring."
Mr. Bernanke earlier this year indicated the Fed might consider slowing its monthly bond buying program, by which it aims to keep interest rates low and spur credit growth. Still, the Fed needs to see lower unemployment and a higher inflation rate before it acts, economists say.
The Australian dollar has fallen by close to 15% since speculation surrounding so-called "tapering" of the bond-buying first began.
"I think there is a good chance the Fed Chairman will have a bet each way," said CMC Markets currency strategist Tim Waterer. "He will likely keep the markets cheery by maintaining an accommodative stance, however this will likely be balanced to a degree by talking about the continuation being data-dependant."
Late Wednesday, the Australian dollar was trading at US$0.9222 compared with US$0.9156 late Tuesday. It traded at a 3-day high of US$0.9262 in New York Tuesday.
Locally, there were few fresh leads to follow, traders said. The next major moment for Australian markets will come next week with the release of second-quarter inflation data. The Reserve Bank of Australia said Tuesday there is scope to lower its policy interest rate if needed thanks to tame inflation. It also indicated the lower Australian dollar and record-low rate were starting to stimulate the economy.
"The Bank appears relatively content to wait a little longer to gauge the impact of the recent easing of financial conditions on the economy," said ANZ Bank chief economist Warren Hogan.
The RBA cut its rate to a record low of 2.75% in May to spur economic growth outside of the mining sector, which is cooling quickly due to lower commodity prices and economic slowdown in China, Australia's biggest trading partner.
