Aussie dollar cools

 

dollar, world, globe, moneyThe Australian dollar is lower as the dust settles on the US Federal Reserve’s unexpected decision to maintain its economic stimulus program.

At 0700 AEST on Friday, the local unit was trading at 94.39 US cents, down from 95.15 cents on Thursday.

The Australian dollar rallied to a three month high of 95.28 US cents on Thursday after Fed policy makers decided against tapering their $US85 billion-a-month bond purchasing program.

Instead, the Fed cut its growth forecast for this year and next.

BK Asset Management managing director Kathy Lien said the US dollar had stabilised and was beginning to recover in the wake of the decision.

She said the Fed’s decision could pose a problem for economies like Australia’s, since the prospect of tapering had helped bring the Australian dollar down, strengthening the local economy by supporting growth outside of mining investment.

“Their decision to delay a reduction in asset purchases can pose a problem for central banks of countries such as Japan, Australia and New Zealand who may have been banking on US dollar strength to ease pressure on their currencies,” Lien said.

“If currencies continue to strengthen versus the US dollar, these central banks may have to offset the drag on the economy with easier monetary policies which some feel could plunge the world back into a currency war.”

Lien said the market was now beginning to move onto the US debt ceiling debate.

“For the past four months, the US government has been using emergency measures to avoid breaching the $16.7 trillion debt ceiling,” Lien said.

“Based on the current level of spending, the government could run out of cash by October 1, which could force a government shutdown in late September.

“The risk of a government shutdown is one of the main reasons why the central bank decided to keep policy steady.

“Foreign exchange traders shouldn’t be overly concerned about a government shutdown because the impact on the dollar is expected to short lived.”

AAP

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