Exchange rates today: US dollar loses ground to AUD, NZD and even the EUR overnight

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Category: US Dollar Exchange Rate

Published on Thursday, 26 January 2012 09:33

Written by Rob Samson

Markets welcome indications that the worlds largest economy is se for almost three years of 'ultra-loose' monetary policy.

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US dollar exchange rates lost ground in the Asian session overnight; this following a decidedly supportive US FOMC decision.

Gareth Berry, in his morning exchange rate note to clients says:

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"Investors added more risk, inspired by the Fed’s pledge to keep rates on hold until late 2014. AUDUSD and NZDUSD saw most of the action, and even EURUSD crept higher."

The US dollar is the global funding currency, as such when investors buy into other asset classes, as is the case today, the US dollar gets bid lower as supply of the currency is increased.

This morning equity and commodity market action is decidedly bullish, and this will continue to support the likes of the Australian dollar and New Zealand dollar - these two currencies are classed as commodity currencies and tend to appreciate when markets move higher.

The British pound is lagging however, save for the GBPUSD rate which is higher.

Back to the US Fed:

Apart from the rates pledge, the Fed also committed to an explicit inflation target for the first time − core personal consumption expenditure (PCE) is to be steered towards 2%.

Berry comments:

"This potentially opens the door to a further round of QE if inflation slows dramatically, and adds to the policy decision’s dovish undertones.

"If that wasn’t enough, Fed Chairman Bernanke said the fact that rates may be left on hold until 2014 implies that asset sales will not happen before 2015.

"Taken together, this clearly sets the scene for almost three more years of ultra-loose US monetary policy."

The new communication tools provided a detailed look at opinion across the FOMC.

New charts revealed that 11 of the 17 members believe a rate hike is not appropriate before 2014 – and several would be content to wait until 2015 or even 2016.