Article by AlgosysFx Forex Trading Solutions
The US dollar is set to lose ground opposite its Australian counterpart to conclude the week’s trades as the markets cling onto positive remarks from various Federal Reserve officials, enhancing appetites for risk. Likewise, a newspaper report indicating that Spain could seek a new rescue plan within a week, managing to reduce the risks associated with the outlook for the Euro Zone.
Amid skepticism over the effectiveness of the third round of quantitative easing unveiled by the Fed last week, three central bank officials defended the policy yesterday and assured that inflationary risks are remote. In separate speeches yesterday, both Cleveland Federal Reserve Bank President Sandra Pianalto and Atlanta Fed President Dennis Lockhart said they see positive effects from the latest bond-buying. The asset purchases should put downward pressure on longer-term interest rates, which will likely help the real estate sector. Addressing concerns that the scheme would stoke high inflationary pressures, Lockhart said the risk of a serious bout of inflation was remote. Both also assured that the Fed will continue to evaluate the pros and cons of the program to suggest that central back stands prepared to support the economy.
Meanwhile, Minneapolis Fed President Narayana Kocherlakota said that the central bank should hold rates near zero until the unemployment rate drops below 5.5 percent. Though such objective would likely take four or more years, he said that the Fed should keep its vow as long as inflation expectations remain under control. His current position seemingly reverses his view in May that the Fed could need to raise rates this year or next. His change in view likely signifies how concerned the Fed is over the sluggish US economy. With the Fed officials providing assurance over the effects of QE3, the Greenback is apt to lose ground on risk-on trades.
Optimism over the European debt outlook is also set to put the markets on a high after the Financial Times reported that European Union officials are construction a new Spanish rescue program that will allow for the ECB bond-buying to go ahead. According to the report, the plan is focused on ensuring that reform measures insisted upon by international lenders are in place before a bailout is requested. The plan will likely be announced on September 27 and will focus on structural reforms to the Spanish economy rather than new taxes and spending cuts. On views that Europe is finally taking considerable progress toward a resolution, commodity-linked currencies such as the Aussie are deemed to shine. Hence, a long position is advised for the AUDUSD today.
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