Dollar up after prediction on stimulus
Late on Friday, the dollar was trading at US92.54¢, up from US91.62¢ on Thursday.
The US dollar weakened overnight after reporter Jon Hilsenrath, of The Wall Street Journal, said the Fed was unlikely to begin winding back its stimulus program at its policy meeting next week.
The US central bank's Federal Open Market Committee will meet next week to discuss its monetary policies.
Though few expect any changes to its easy money policies, the market may be relatively quiet until the meeting, given general uncertainty over Fed policies.
"The US dollar took a bit of a bashing overnight because there were market rumours that the Fed wasn't going to taper quantitative easing," said Easy Forex currency dealer Milica Nikolic. "This sent the US dollar weaker."
Disappointing US durable goods orders also put pressure on the greenback. Orders for big-ticket US manufactured goods rose 4.2 per cent in June, higher than expected, but the increase was driven by transportation equipment orders, a volatile item.
Bond futures prices are flat after the US durable goods orders data.
Westpac market strategist Damien McColough said bond futures were affected by the figures, but only marginally.
"This is really just a consolidation day," he said.
The September 10-year bond futures contract was trading at 96.210 (implying a yield of 3.79 per cent), down from 96.215 (3.785) on Thursday. The three-year contract was at 97.290 (2.710 per cent), unchanged.
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The Australian dollar rose after Wall Street Journal reporter Jon Hilsenrath suggested the US Federal Reserve was likely to keep its stimulus program in place at its next meeting. That expectation weakened the US dollar and pushed the AUD to about US92.54¢ from US91.62¢ the previous day.
Market talk that the Fed is unlikely to begin winding back stimulus (quantitative easing) led traders to price in continued easy US monetary policy. That reduced demand for the US dollar, which in turn supported other currencies like the Australian dollar.
The FOMC is scheduled to meet next week to discuss monetary policy. Because there is general uncertainty about Fed policy and few expect major changes, markets may be relatively quiet and more cautious until the meeting and any official guidance are released.
The durable goods report was seen as mixed: headline orders for big-ticket manufactured goods rose 4.2% in June, which was higher than expected, but the increase was driven by volatile transportation equipment. That mixed or disappointing interpretation put additional pressure on the US dollar.
‘Flat’ bond futures means prices showed little overall movement after the data. According to Westpac strategist Damien McColough, the durable goods figures had only a marginal effect — the market essentially consolidated rather than moving sharply in one direction.
The September 10‑year bond futures contract was trading at 96.210, implying a yield of about 3.79%, slightly down in price from 96.215 (implying 3.785%). The three‑year contract was quoted at 97.290, implying a yield of about 2.71%, and was unchanged.
Easy Forex currency dealer Milica Nikolic said the US dollar ‘took a bit of a bashing’ after rumours the Fed wouldn’t taper quantitative easing, which weakened the greenback. Westpac market strategist Damien McColough described trading as a consolidation day, noting bond futures were only marginally affected by the data.
The article highlights that currency and bond markets are sensitive to Fed signals and economic data. Right now markets are reacting to expectations that the Fed will keep stimulus in place and to mixed US data, so investors can expect relative quiet and consolidation until the Fed’s policy meeting provides clearer direction.
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