The Australian dollar made a run for the US81c mark in today’s trading session following on from yesterday’s gains on the back of a dovish statement from the US Federal Reserve.
At 1.06pm (GMT) the Aussie dollar was trading at US80.15c after reaching a high of US80.69c earlier in the trading session.
The Australian dollar’s recent gains have been at the expense of US dollar weakness, which was exasperated yesterday when US Fed President Janet Yellen raised concerns over the health of the US economy and seemingly took an interest rate hike off the table for the foreseeable future.
This caused investors to dump the greenback but some believe it’s too early to call and the chance of further rate hikes by the Fed this year is a distinct possibility and should a strong round of data from the US hit the market within the next month the Fed’s outlook could change dramatically.
"It is central banks around the world who pushed the volatility this low . The fed fund rate now pricing only 45 per cent chance for another rate hike for this year. The main reason is that the inflation is so low and markets do not believe that the Fed will increase the interest again this year. Noted ThinkMarkets UK chief analyst Naeem Aslam
"However, this could change rapidly because all what it takes is just a couple of strong economic reading and these Fed fund rate will show a completely different percentage." he added.
With the Australian dollar above US80c, problems in the local economy are likely to develop such as the rising cost of exports, which will make Australian goods uncompetitive with their foreign rivals, which may cause the government to step in.
“The higher dollar also adds unavoidable costs to many businesses at a time when rising energy costs are cutting deeply into margins,” said Australian Industry Group chief Innes Willox.
“Governments need to redouble their efforts to agree on policies that will put downward pressure on energy costs that are eye-wateringly high to help mitigate to dollar cost impact.” He added.