Australian Dollar buoyed by Fed

January 26, 2012

FOREX

The Fed has ignited risk assets this morning with its commitment to keep rates low. Bloomberg reports,

“The Committee expects to maintain a highly accommodative stance for monetary policy,” the Federal Open Market Committee said in a statement released in Washington today. “Economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

Gold is up as are commodities generally and the Australian Dollar is just below 1.06 as you can see in the chart below.

Bad news is good news in the world of risk assets when it comes to the continued outlook for low interest rates and while there are no signs of QE yet risk assets are at least happy that rates globally are staying low for a while. Add this to some notions, misguided in my estimation, that yesterday’s CPI reduces chances of interest rate cuts in the next few months and the Aussie is on a tear.

Ultimately RBA cuts might undermine the Aussie but rates are just one input in the model. For now the Aussie is still running higher.

Happy Australia Day and Happy Birthday to my beautiful boy Hamish – 9 years old WOW!.

Greg McKenna from WordPress Mobile on my iPhone

www.twitter.com/gregorymckenna

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