US holds key to lower Aussie
Dr Bernanke said on Wednesday that the Fed "remains committed to maintaining highly accommodative policies for as long as they are needed". The Fed would continue to monitor the progress made in the labour market since the start of the $US85-billion-a-month bond-buying program in September last year, and the "prospect for continued gains", he added.
"The target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold [of 6.5 per cent] is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation," Dr Bernanke said.
The Australian dollar initially jumped past US94¢ late on Tuesday on comments from China that the world's second-largest economy would intervene less frequently in the foreign exchange market.
Dr Bernanke's remarks pushed it to as high as US94.48¢, before easing slightly. It was buying US93.99¢ late on Wednesday.
Currency strategists said the sale of new 20-year Australian government securities, the final issue of the Treasury bond until April next year, also provided support for the local dollar.
Analysts added that while China was signalling a liberalisation of its exchange rate, any major reforms were still in the early stages.
The RBA's assistant governor for financial markets, Guy Debelle, said on Wednesday it would be a "desirable thing" to hear that the Fed had begun to taper as it meant the US economic outlook was strengthening. But until then, and as long as the Fed's bond-buying program remained unchanged, the dollar was likely to remain at a higher level, he said.
"As we've said on a number of occasions, we would prefer [the Australian dollar] to be lower, one major thing that would do that would be the day when [the US Fed] changes its monetary policy direction," he said. "The sooner that day comes the better, but that is not in our hands — it's in theirs."
Dr Debelle's comments continued the RBA's recent push to talk down the Australian dollar, which it believes needs to trade at lower levels to support the economy as it rebalances away from mining-led growth.
It also reflected the frustration faced by the world's central bankers as they readjust their monetary policies to accommodate quantitative easing by some countries.
Frequently Asked Questions about this Article…
The US Federal Reserve's policy, particularly its interest rates and quantitative easing measures, significantly impacts the Australian dollar. When the Fed maintains low interest rates and continues its bond-buying program, it tends to keep the Australian dollar at a higher level. A change in the Fed's monetary policy direction could lead to a lower Australian dollar.
The Reserve Bank of Australia (RBA) prefers a lower Australian dollar to support the economy as it transitions away from mining-led growth. A lower dollar can make Australian exports more competitive and help balance the economy.
The US Federal Reserve plays a crucial role in global monetary policy as its decisions on interest rates and quantitative easing can influence currency values and economic conditions worldwide. Other central banks, like the RBA, often adjust their policies in response to the Fed's actions.
Quantitative easing is a monetary policy where a central bank buys government securities to increase the money supply and encourage lending and investment. This can lead to lower interest rates and affect currency values by making a country's currency less attractive to investors, potentially lowering its value.
Recent comments from China about intervening less in the foreign exchange market initially caused the Australian dollar to jump past US94¢. However, the impact was temporary as the dollar eased slightly afterward.
The US Federal Reserve's bond-buying program, part of its quantitative easing strategy, aims to stimulate the economy by keeping interest rates low. This program influences global financial markets and can affect currency values, including the Australian dollar.
The Australian dollar might remain high despite the RBA's preferences due to the US Federal Reserve's ongoing bond-buying program and low interest rates. Until the Fed changes its monetary policy direction, the Australian dollar is likely to stay at a higher level.
A lower Australian dollar can benefit the economy by making exports more competitive, boosting tourism, and supporting industries that rely on foreign demand. It can also help the economy transition from mining-led growth to a more diversified economic base.
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