Australian dollar was demonstrating a retreat against its US counterpart on Wednesday, as Federal Reserve Chairman Ben Bernanke indicated that banks base interest rate may remain in proximity to zero long after asset purchases end, which triggered a broad support for the greenback.
AUD/USD reached a session low at 0.9382 at 6:30 GMT, after which consolidation followed at 0.9391, still losing 0.46% for the day. Support was likely to be found at November 19th low, 0.9354, while resistance was to be seen at November 8th high, 0.9480.
Federal Reserve Bank Chairman Ben Bernanke said that central bank’s benchmark interest rate will probably be maintained closed to zero for a “considerable time” after bond purchases end. The labor market in the United States has demonstrated “meaningful improvement”, since the Federal Reserve’s monetary stimulus program started, Bernanke said in remarks prepared for a speech to economists in Washington on Tuesday. A “preponderance of data” would be needed in order to begin removing accommodation, according to bank’s Governor. The benchmark interest rate may remain at low levels “perhaps well after” the rate of unemployment in the country falls below Fed’s objective of 6.5%.
Ben Bernanke underscored that the central bank should focus on the so called “forward guidance”, which would facilitate maintaining short-term interest rates at low levels. However, the moment, which would mark a transition from Quantitative Easing to “forward guidance” policy has not yet been specified, as this change will be entirely dependent on a stable and continuing improvement in US labor market and also on an inflation rate approaching Feds target of 2%.
Later in the day, an official report will show the performance of the consumer price index (CPI) in the United States. It is projected that the index will remain flat in October, following a 0.2% increase in September compared to August, while the annualized consumer inflation probably slowed down to 1.0% in October, after reaching 1.2% in September. In case the CPI demonstrates a better performance than expected, this will provide support to US dollars demand.
The above mentioned remarks echoed statements made by other Fed officials. Federal Reserve Chair-nominee Janet Yellen said in front of the Senate Banking Committee on November 14th, that as US economy was beginning to show progress, rates of inflation and unemployment still have more room to approach central bank’s targets. Markets considered such comments as rather dovish, as it seemed Fed officials wanted further solid proof of economic improvement before making a move towards reduction of monthly asset purchases. Federal Reserve Bank President for New York William Dudley said on November 18th, that he was “getting more hopeful” about economic development, while also signaling no change in stimulus anytime soon.
Fed policymakers will probably trim the scale of bond purchases to 70 billion USD per month from the current 85-billion-USD monthly pace at the policy meeting on March 18th-19th, a survey has already shown.
Market players now turned their attention to the minutes of Federal Reserve Bank’s most recent meeting on policy, scheduled for release at 19:00 GMT today.
In the mean time, the Aussie came under selling pressure today also because of comments made by Reserve Bank of Australias Deputy Governor Philip Lowe, who expressed his support of the idea that a cheaper national currency has always been more preferable for the central bank.
Also, a MNI gauge of business confidence for China slowed down to a value of 53.3 in October from 55.3 in September, which influenced to an extent the Australian currency, as China is Australias largest export market.
Elsewhere, the Aussie was lower against the euro, with EUR/AUD cross advancing 0.37% on a daily basis to trade at 1.4409 at 9:31 GMT. AUD/NZD pair was gaining 0.11% to trade at 1.1285 at 9:33 GMT. It became clear that the input producer price index (PPI) for New Zealand rose 2.2% during the third quarter of the year, following a 0.6% gain in Q2, while the output producer price index climbed 2.4% in Q3, after a 1.0% increase in the second quarter. Output indexes gauge the change in prices, which manufacturers receive for their production, while the input indexes represent the change in cost price of production itself.