australian dollar softer after fomc minutes and a fresh slide in iron ore 901912014

The minutes of the October meeting of the US Federal Open Market Commission (FOMC) released earlier today gave the markets no reason to change their view that the Fed would raise interest rates before other major central banks in Europe and Japan, and sometime in the second half of 2015. “There’s nothing radical [in the FOMC minutes] to suggest it will change the near-term trend for the dollar.” said Ian Gordon, currency strategist at Bank of America Merrill Lynch, as quoted by the Wall Street Journal.

The Australian dollar traded weaker yesterday, pressured by dovish RBA minutes and a statement by Governor Stevens that said the currency was overvalued. Iron ore prices crashed to fresh multi-year lows and this too weighed on the Aussie dollar. The currency traded at 86.16 US cents as at 0700 hours AEDT, down from 86.65 US cents Wednesday. Shortly before, the currency had risen to a high of 86.57 US cents.

"The Fed minutes were, relatively, reasonably balanced…there was a little something for both sides of the picture," said ANZ senior foreign exchange manager Sam Tuck from Auckland, according to the Sydney Morning Herald. "They acknowledged the slower global growth prospects … but they didn't really want to comment on it because they thought it would be creating an overly pessimistic impression."

Though the FOMC minutes showed that policy makers were worried about the outlook on inflation, their view was counterbalanced by the better news on US growth and the strength in the labour market. Last month, US unemployment fell to a more than six-year low of 5.8%, as employers added 214,000 workers. Taken together, the minutes appeared to convey the impression that low inflation expectations in the second half of 2015 would not perhaps affect current perceptions of interest rate trajectory.

The FOMC minutes drove strength in the US dollar, which pushed up to 118.057 Japanese yen at one point, reaching a fresh seven-year high. US stocks declined marginally but remained near record highs.

Find up to date information on the ASX at City Index.