The Australian dollar rebounded from its recent gains on Thursday. The Australian currency was dragged lower by the Federal Reserve’s (Fed) decision to reduce its monthly bond purchases and China’s weak Purchasing Managers’ Index (PMI).
Following the Federal Reserve’s two day policy meeting, Fed policymakers concluded the meeting by deciding to reduce the central bank’s stimulus further by $10 billion to $65 billion, showing signs that the world’s largest economy is expanding despite the recent disappointing non-farm payrolls data for the previous month.
The Federal Reserve’s decision to trim its monthly asset purchases further slightly strengthened the greenback.
The Australian dollar weakened by 30 pips to $0.8730 following the Fed’s decision, while the downbeat Chinese PMI dragged the aussie 20 pips lower to $0.8709.
China Purchasing Managers’ Index (PMI)
The final PMI for January weakened, standing at 49.5, dropping from the previous reading of 49.6 seen last week. Any reading above 50 indicated the rise in manufacturing activity, while any reading below 50 points a contraction.
Australia’s Housing Prices
Australia Housing Industry Association posted a rise of 14.4% in home sales last year, indicating an expansion for the first time since 2008. Month-on-month sales declined 0.4% in December, dropping from the previous rise of 7.5% seen in the previous month.
Fed-Tapering Decision
The Federal Open Market Committee (FOMC) concluded its two-day meeting by deciding to reduce the central bank’s monthly purchases of treasuries and mortgage-backed securities (MBS) by an additional $5 billion.
“Growth in economic activity picked up in recent quarters,” The statement from the Federal Reserve stated. “Household spending and business fixed investment advanced more quickly in recent months.”
Fed members concluded to reduce the monthly asset purchases despite the weak employment report which came in below analyst forecast. The unemployment rate dropped to 6.7% in December, the lowest since October 2008.
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