The Australian dollar has surged to almost 78 cents against the US dollar, after the US Federal Reserve signalled it would wait for unemployment to fall before lifting interest rates.
The surge was driven by a fall in the price of the US dollar, and a corresponding rise in the US share markets, after the US central bank delivered an unexpectedly ‘dovish’ statement.
The Fed’s statement was ambiguous, leaving the door open for rate hikes in June, but saying it would delay raising interest rates until the rate of employment rises.
If the US dollar stays down against the Australian dollar, this will increase the likelihood that the Reserve Bank of Australia will cut rates sooner rather than later, in an attempt to push the Aussie dollar down and give the export and tourism industries a boost.
The effect of the Fed’s decision on the Australian share market was also apparently marked. Since opening on Thursday, the ASX 200 has surged 80 points, a rise of 1.3 per cent. At 11am on Thursday it was at its highest level in two weeks, and not far off its highest level in six years.
The Federal Open Market Committee put its position as follows:
“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.
“This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.”