Australian Dollar Outlook - 19 June 2014

Bell FX Currency Outlook: The Australian Dollar is considerably stronger after the US Federal Reserve surprised when it revised economic growth forecasts downwards overnight.

Australia: In currency markets, the USD was broadly weaker, lifting AUD/USD back to USD 0.9400, which is well up from 0.9330 on Wednesday. The US Federal Reserve tapered QE3 by a further USD10bn (to USD35bn), though there were few substantive changes to the Fed's policy Statement.

Economic activity was said to have rebounded in recent months, while the Fed reiterated that the current 0-¼% target range for the federal funds rate (FFR) would be maintained for a "considerable time after the asset purchase program ends."

The accompanying projections contained minor changes, with forecasts for the unemployment rate revised down 0.1-0.2% in 2015 and 2016, while 2014 GDP expectations were also revised lower. These forecasts largely align with the market's view that hikes in the FFR will kick off from mid-2015, with tapering set to end in Q4 of this year.

At her press conference, Fed Chair Janet Yellen added little to the Statement, noting the FOMC is still discussing details of eventual tightening, but noted there was nothing to announce at this point and the discussions were part of "prudent planning."

In relation to inflation, Yellen noted it is largely evolving in line with the FOMC's expectations. All up, despite further falls in the US unemployment rate and signs that inflation is returning towards the Fed's 2% objective, it appears the Yellen-led Fed is taking a "steady-as-she-goes" approach to monetary policy.

Slower growth in all liklihood points to a weaker USD thus lending support to the AUD. In Australia today, the RBA Bulletin is released at 11:30AEST.

Majors: Looking at the majors, as written, the highly anticipated FOMC decision was all the news. In general, the USD weakened agaionst most
pairs. Oil was mixed as tension intensified in Iraq, spot gold closed slightly higher following the Fed's comments.

Base metal prices were mixed overnight with nickel and lead down and copper largely unchanged. Agricultural commodities mostly rose overnight. The BOE Minutes showed the MPC voting 9-0 to keep interest rates unchanged in June.

The headline that grabbed attention was the Bank being surprised by the low probability the market attached to a 2014 rate hike - suggesting it's only a question of when, not if, interest rates will rise.
Economic Calendar
19 JUN NZ GDP QoQ/YoY Q1
AU RBA Bulletin, June Quarter
UK Retail Sales May
US Initial Jobless Claims Jun-14

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