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US Fed Reserve cuts Stimulus by Another $10 bn

US Federal Reserve has announced that it would cut down the economic stimulus by $10 billion or 11 billion AUD. This is the third time when Federal Reserve reduced its bond buying program for a month. Analysts are expecting interest rate to go up as a result.

What followed the decision of US Federal Reserve was AUD falling 1 US cent against US dollar. The decision taken by US FR was a bit surprising as the country has been going through economic slowdown. But policy officials briefed the slowdown is due to extreme winter.

On Thursday, at 0630 Australian Eastern Daylight Time, the local unit was trading at 90.25 US cents which was down 0.93 US cents from Wednesday’s closing which was 91.18 US cents.

It should get a mention that AUD has displayed pliancy against the headwind in the global market. Due to the ongoing crisis in Crimea and the possibility of war was looming over, the market followed risk aversion strategy. The trading range for AUD has been 89 US Cent to 91 US Cent. On Wednesday, AUD was traded at 91.38 US Cents, which was its year-high.

The median forecasts for the Australian dollar in the second, third and fourth quarters of this year have increased by US1¢ to US88¢, US87¢ and US86¢ respectively since February, according to data from Bloomberg.

This year’s median forecasts for AUD have increased after its fair performance by 1 US Cent in the first quarter, 88 US Cents in the second, 87 US Cents in third and US 86 cents in the final.

Janet Yellen, chairperson of US Federal Reserve will not rise until next year as the unemployment rate in US is still high and inflation is not fully controlled. “We have expressed a number of opinions about the likely path of rates. In particular, the committee has endorsed the view that it anticipates it will be a considerable period after the asset purchase program ends before it will be appropriate to begin to raise rates.” She said.

The US Fed’s target benchmark interest rate was earlier zero. However, Fed officials are now expecting it to be 1% at the end of the next year and 2.25% at the end of 2016.

If the benchmark interest inches to zero, it could give US real estate and construction market a boost. This way, the country could battle out unemployment and inflation.

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