Go Markets Aus

FX Market Commentary – 17th March 2010

As anticipated, overnight we saw the Fed keep interest rates at record lows between zero and 25 bps and also maintained the current stance of "exceptionally low levels of the federal funds rate for an extended period." However, once again FOMC member Thomas Hoenig stated he no longer support the “exceptionally low” interest rate tone, citing a continuance of this language would enhance the risk of asset bubble developing. This resulted in broad greenback losses against major counterparts – The US Dollar index which measures the dollar's value relative to six major foreign currencies currently trading 0.47 percent lower at 79.66. US Housing Starts recorded annual growth of 575,000 in February against a previous upward revision of 622,000 during January. Building permits also eased down in line with consensus recording annual growth of 612,000 in February from a previous 620,000.

True to form, the price of Gold also surged on the back of greenback weakness rising US$20 a troy ounce to current levels of US$1128. By default, commodity driven currencies became a beneficiary, evident in Aussie dollar strength which is trading close to overnight highs at current levels of 92 US cents.

The window of opportunity for Aussie dollar strength is still well and truly open, with interest rate activity in the states a prime consideration for further upside on the local unit. Traders are balancing the fed's stance on interest rates going forward, in conjunction with local conditions which on balance remains an economy of strength. However, yesterday RBA minutes didn’t exactly paint a bullish view of near term interest rate movements, rather suggesting a “gradual” return to normal interest rates. The latest jobs data is also likely to have a significant impact on the RBA’s stance on interest rates when they reconvene in April. Australia’s unemployment rate edged up to 5.3 percent from the previous downward revision of 5.2 percent. The finer points of the data showed the Australian economy created 11,400 jobs in February; however the net result showed only 400 new jobs created when factoring in the 11,000 part time positions lost.