Risk on. Again. After teasing the global economy for months about the prospect of reducing America's massive economic stimulus program, Ben Bernanke has decided at the last minute to hold off.
It was never a certainty. For the factor that almost everyone overlooked in their haste to predict a September start to the stimulus tapering was American unemployment.
In addition to targeting inflation, the US Federal Reserve added unemployment to its goals, and specifically a 6.5% unemployment target as a pre-condition to ending its $US85 billion a month asset purchase program.
While dropping steadily in recent months, it remains uncomfortably high at 7.3%, way above the target.
Since May 22, when Bernanke first hinted that the program would be wound back as the US economy recovered and sent the Australian dollar tumbling from $US1.04, global markets have endured a series of wild gyrations. That will continue here this morning.
Gold prices already have risen. The Australian dollar has leapt to US95c. For the local stockmarket, US dollar exposed stocks this morning will take a hit, along with cyclicals that have benefited from an expected recovery in the non-resource sectors (see my article Recalibrating into the dollar downturn).
Most analysts had penciled in a domestic currency well below US90c for the end of this year, a level which would have provided a serious lift to corporate earnings across a broad spectrum of sectors, from exporters to import competing firms.
That poses a serious problem for the newly elected Coalition government and the Reserve Bank.
While it has committed to fiscal restraint, the expected economic boost from a weaker dollar now will be delayed which may require a softening of that policy.
The Reserve Bank, meanwhile, will be watching this morning's events with trepidation. In the minutes to its most recent meeting a fortnight ago, it commented that the domestic currency remained uncomfortably high. That was when the dollar had just moved back above US90c.
Further rate cuts now are on the cards.