Dollar edgy on stimulus uncertainty
The currency rose as high as US97.50¢ early on Friday, up sharply from US96.23¢ on Thursday afternoon.
But it fell back during the morning and by the end of the local session was at US96.79¢.
LTG Goldrock director Andrew Barnett said the market was still reacting to Fed chairman Ben Bernanke's testimony to Congress, which raised expectations the central bank could start to wind back its asset buying program.
In his testimony Dr Bernanke warned of the dangers of stopping the Fed's stimulus program too soon, but later indicated the central bank could start to wind it back in the next few months.
"The market has just exhausted itself after Wednesday and Thursday," Mr Barnett said. "I think there are some traders who are just taking the pulse as to what's going to happen next."
Mr Barnett said the dollar would continue to face downward pressure.
Meanwhile, bond futures prices were lower as traders weigh falls on equity markets against the possibility the Federal Reserve will halt its stimulus program.
UBS interest rate strategist Matthew Johnson said: "The market probably wants to rally because equities are falling but there's this uncertainty about what the Fed is going to do."
He said a big focus for bond markets overnight would be the release of durable goods data in the US.
Late on Friday, the June 10-year bond futures contract was trading at 96.690 (implying a yield of 3.310 per cent), down from 96.705 (3.295 per cent) on Thursday.
The three-year contract was at 97.400 (2.600 per cent), down from 97.410 (2.590 per cent).
AAP
Frequently Asked Questions about this Article…
The Australian dollar rose early in the session—peaking around US97.50¢—as markets reacted to comments from Fed chair Ben Bernanke that raised expectations the Fed could begin winding back asset purchases. It later eased to about US96.79¢ by the end of the local session as traders reassessed the stimulus outlook.
Bernanke warned about the risks of ending Fed stimulus too soon but also signalled the central bank could start to reduce asset purchases in the coming months. That mixed message increased market uncertainty, prompting short-term currency moves and cautious trading as investors tried to 'take the pulse' of what comes next.
Andrew Barnett said the market had 'just exhausted itself' after recent moves and that some traders were pausing to see what happens next. He also suggested the dollar would continue to face downward pressure amid the ongoing uncertainty.
Bond futures were trading lower as traders weighed falls in equity markets against the possibility the Fed might halt its stimulus program. For example, the June 10‑year bond futures contract traded around 96.690 (implying a yield of 3.310%), down from 96.705 the previous session.
Traders are watching key US releases—UBS strategist Matthew Johnson highlighted durable goods data as a big focus—because incoming economic numbers can shift expectations about Fed policy and therefore influence bond yields and currency moves.
According to UBS, markets may want to rally when equities fall, but uncertainty about what the Fed will do can limit that rally. In practice, equity weakness combined with unclear policy signals tends to increase volatility in both bond and currency markets.
Futures prices are quoted in index points that imply yields; the article notes the June 10‑year contract at 96.690 implies a yield of 3.310%, while the three‑year contract at 97.400 implies a yield of about 2.600%. Investors use these moves to gauge market expectations for interest rates and Fed action.
Keep an eye on Fed communications (testimony and policy signals), key US economic releases such as durable goods data, bond yields and futures, and equity market trends. These factors are driving short‑term volatility in the Australian dollar and can help investors understand shifting market expectations without making specific buy or sell decisions.
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