The Australian Dollar to US Dollar exchange rate recovered ground on Tuesday after Federal Reserve Chairperson Janet Yellen said that the Central Bank would not raise interest rates anytime soon.
Earlier in the session, the Australian Dollar (AUD) had weakened against peers such as the US Dollar (USD), Pound (GBP) and Euro (EUR) as investors were jittery ahead of Federal Reserve Chairman Janet Yellen’s testimony to the US Congress.
In addition, the Australian Dollar had also come under pressure from data released in neighbouring New Zealand, which showed that inflation is expected to fall sharply across the Trans Tasman region. According to the Reserve Bank of New Zealand its inflation expectation for the next two years fell to 1.8% in the first quarter of 2015, a drop from the previous figure of 2.06% seen in the final quarter of last year.
‘It was contagion from the sharp decline in the New Zealand Dollar following the disappointing inflation expectation report, which trickled down into the Australian Dollar. The second reason for the fall is the broad-based firmness in the US Dollar,’ said a senior currency strategist.
Last week’s policy meeting minutes showed that Fed policy makers appear to be in favour of leaving interest rates unchanged at near 0% for a longer period. The minutes outlined falling inflation as one of the major causes for their hesitation. Recent economic data releases have also cast doubt on the strength of the world’s largest economy.
“The FOMC’s assessment that it can be patient in beginning to normalize policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings,” Yellen said in prepared remarks before the Senate Banking Committee.
Yellen stuck to the dovish tone set in the minutes, and reaffirmed earlier suggestions that the Federal Reserve will hike interest rates in the summer. As a result, the ‘Aussie’ regained lost ground against the ‘Greenback’ to briefly trade back above the 78 cents level.
The US Dollar was also softened by the release of weaker than forecast US CB Consumer Confidence data, which showed that consumer confidence fell from January’s figure of 102.9 to 96.4 in February.
A separate release, which showed that activity in the USA’s service sector, expanded at its fastest pace since October last year offered little support to the US currency.
During the European session, the AUD/USD exchange rate was trading in the region of 0.7790.