Australian dollar and the Fed
Published on 17.10.2017 17:20

The Australian dollar is directionless today after 2 days of movement, but may have received some new found support after doubts one again hang over the US Federal Reserve’s ability to lift interest rates this year.

Inflation numbers once again hit the market below expectations and still sit well below the Fed’s target rate, and as we have heard from Fed President Janet Yellen many times this year, she expects inflation will finally hit the Fed’s target rate as we enter into next year,

“My best guess is that these soft readings will not persist, and with the ongoing strengthening of labour markets, I expect inflation to move higher next year,” noted Yellen

“Most of my colleagues on the interest-rate-setting Federal Open Market Committee agree.”

If we look at the real picture though, is it really a good time for the Fed to lift interest rates in this environment?.

They have been promising for over a year now that inflation will finally hit their target rate (Hasn’t happened) and so why do we have to believe that this will happen early next year.

There is also the standoff between North Korea and the US with the situation getting worse by the day and who knows when this could explode.

The supposedly strong labour market was stopped in its tracks last month with the economy losing 33 thousand jobs with the Fed also saying that this was a temporary situation.

It seems with all of these assumptions, and no evidence, the Fed should hold off raising rates for now instead of installing fear into the market, and this should benefit the Australian dollar.


Andrew Masters

Analyst

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