The Australian dollar initially rallied after yesterday’s US Federal Reserve interest rate decision before succumbing to pressure as the news kicked in.
At 5.50pm (GMT) the Aussie dollar was trading at US71.15c down from US72.28c in yesterday’s trade.
In a widely expected move, the US Fed lifted interest rates by 25 basis points to 0.50 percent, which the market had already priced in against the major currencies before the move.
After initially rallying to a high of US72.79c after the news, the Australian dollar pulled back sharply, continuing its slide today before finding some support around US71.15c.
Interest rates now stand at 2 percent in Australia against a rate of 0.50 percent in the US, which may still be attractive to some Aussie bulls as the difference represents an attractive carry trade.
With the first rate hike by the Fed is out of the way, traders are left predicting when the next move may come with analysts predicting a move of between 50 to 100 basis points over the next 12 months.
In a monetary speech after the rate decision US Fed president Janet Yellen noted that interest rate rises would be “gradual” and data dependent, and the market should not anticipate a quick succession of moves as it may derail the fragile recovery of the economy.
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