WSJ:Australian Dollar Rises as Fed Speculation Sinks US Dollar
By James Glynn
SYDNEY--The Australian dollar was higher Friday reflecting broad U.S. dollar weakness in Asia, as market participants increasingly expect the U.S. central bank to change the economic conditions it wants to see before slowing its stimulus.
The Wall Street Journal U.S. Federal Reserve watcher Jon Hilsenrath in a column Thursday said the Fed might lower its 6.5% threshold for unemployment, or say short-term interest rates won't rise if inflation falls, signaling to markets any rise in U.S. interest rates is a distant prospect.
The Fed is on track to keep its $85 billion-a-month bond-buying program in place at its policy meeting next week, but officials likely will debate changes to the way the central bank describes its plans for the program and for short-term interest rates, the Wall Street Journal said.
The article was the main driver of currencies across the region, said Sue Trinh, currency strategist at RBC Capital Markets in Hong Kong.
Markets are likely to be volatile ahead of a Fed meeting next week, said Ms. Trinh.
Late Thursday, the Australian dollar was trading at US$0.9292 compared with US$0.9158 late Thursday.
A speech next week by Reserve Bank of Australia Gov. Glenn Stevens will be the major local focus. Financial markets have priced in a 72% likelihood of a cut in interest rates in August, with bets rising the RBA will hike a further time before the end of the year.
The RBA lowered interest rates to a record 2.75% in May, but the tonic has so far done little to bolster the economy, which is battling a slowdown in investment and a still-elevated Australian dollar.
"Markets will focus on any discussion of the A$, inflation outlook, labour market and China. The case to cut remains strong," Ms. Trinh said.
