Australian dollar higher awaiting US Fed rate decision

The Australian dollar broke through the US80¢ mark today after the latest CPI figures came in only slightly under what most analysts had expected.

The local currency is now trading at US79.70¢ after reaching a high of US80.23¢ directly after the announcement.

The Australian Bureau of Statistics reported on Wednesday the consumer price index rose by 2% in the December quarter bringing the total inflation to 1.7% for the year. The number was just short of analysts’ expectations of a 1.8% rise but is a sharp fall from the 0.5% and 2.3% in the September quarter.

Western Union Business Solutions currency strategist Steven Dooley said the number surprised the market given the recent run of poor inflation numbers from other countries,

“It was a huge shock to markets, especially when there’s been so much conjecture about whether the Reserve Bank would cut rates at its February meeting,” he said.

“Markets have taken this as a clear sign that this is off the table, underlying inflation remains firmly in the lower end of the RBA’s target band and on the back of that strong jobs number we had earlier in the month it certainly seems that there is no desperate imperative for the RBA to cut rates.”

The focus will now be on the latest interest rate decision from the US Federal Reserve due out later today where the central bank is expected to take a tough stance and move ahead with their planned interest rate rise later in the year.

“The statement from the Fed may determine whether the Aussie dollar breaks back above the US80¢ mark or falls back below the US79¢ mark” noted analysts from Fibogroup forex brokers.

“The consensus is that they will take a hawkish stance and indicate a potential interest rate rise so we may see the Australian dollar give up the gains from today”.