The Australian dollar has bounced back from an eight-week low after US Federal Reserve chairwoman nominee Janet Yellen predicted she would delay a wind-back of its monetary stimulus program.
Financial markets have been moving forward their forecasts of a start to the tapering of the $US85 billion a month ($90 billion) bond purchase program after better than expected US jobs growth and gross domestic product data last week, with investors selling down riskier assets and piling back into the US dollar.
But the release of prepared remarks by Dr Yellen on Thursday before her confirmatory hearing on Friday morning led to a weakening of the US dollar.
The Australian dollar was trading just below US92.80¢ late on Wednesday, but rose steadily after her comments about the need for the US economy to strengthen further before the asset-purchasing program was wound back. It traded as high as US93.87¢ on Thursday and was buying US93.43¢ in late trade.
The gold price also checked some of its recent losses, rising for the second day in a row. Gold has shed about 23.5 per cent of its value so far this year.
"Unemployment is down from a peak of 10 per cent, but at 7.3 per cent in October it is still too high, reflecting a labour market and economy performing far short of their potential," Dr Yellen said.
"At the same time, inflation has been running below the Federal Reserve's goal of 2 per cent and is expected to continue to do so for some time."
Her statement was echoed by chairman Ben Bernanke, who said the Fed was still missing its employment and inflation targets.
"They seem to be very much on the same page," Westpac senior currency strategist Sean Callow said. "Their key message is: the Fed is not meeting its mandates to promote strong growth in jobs as well as inflation. Inflation's too low and unemployment's too high.
"If they're missing on their mandates a month before the next Fed meeting, are they really going to be deciding that the time is right to ease back on [quantitative easing] a month from now?
"The message seems to be more of the same into year-end, which seems to have upset more of the hot money in the market." Westpac forecasts the Australian dollar to end this year at about US95¢.
Dr Yellen is expected to stress a continuation of Dr Bernanke's policies at her confirmation hearing, and has been seen as one of the more dovish Fed officials.
"What it means for Australia is that policy is going to continue as it is. It's going to be accommodative, which continues to suggest that the Australian dollar will remain quite high in a historical context," JP Morgan economist Tom Kennedy said. "In saying that though, once they do start tapering, the Australian dollar should move lower. [It depends] how aggressive they are in tapering."
The currency market moves came as a report by consultancy McKinsey & Co found the US government had saved almost $US1 trillion from lower interest rates from 2007 to 2012 as a result of the Fed's unprecedented quantitative easing program.
The report, which looked into the impact and risks of quantitative easing by some of the world's central banks, also found there was "little evidence that ultra-low interest rates have boosted equity markets".
"We cannot discern a large-scale shift into equities as part of a search for yield by investors, and price-earnings ratios and price-book ratios in stock markets are no higher than long-term averages," wrote the report's authors, Richard Dobbs, Susan Lund, Tim Koller and Ari Shwayder.
"Although stock prices do react to announcements by central banks, these are transitory effects that do not persist."
In contrast, the ultra-low interest rates had seen a flow of capital into emerging markets, and in particular their bond markets, with purchases of emerging-market bonds by foreign investors growing from $US92 billion in 2007 to $US264 billion last year, the report said.