The Australian dollar has bounced back overnight coinciding with comments from Fed Chairman Ben Bernanke. In a speech to economist, Bernanke reiterated the Fed's low federal funds rate mantra and expressed uncertainty over the sustainability of recent employment growth. In recent times we've seen the US dollar enjoy two pillars of strength with both positive and negative market environments providing intermittent support, however comments of this nature also undermine the appeal of the US dollar by forcing a recalibration of both interest rate and quantitative easing expectations. In essence, such dovish comments are a way of managing investor expectations and serve as a reminder to market participants that the Fed's 'weak dollar policy' is well and truly in play.
Subsequently, we've seen a Bernanke-inspired rally across risk assets despite mixed economic data with U.S equities recording solid gains with the sentiment barometer that is the S&P500 has gaining 1.4 percent on the day. A major beneficiary overnight was the Euro with led gains against the perceived safety of the greenback and Yen with commodity bloc currencies close behind.
The local unit display resistant behavior at 105.45 US cents but has remained in a tight 45 pips range in the ensuing period. We anticipate the 105 US cent area to contain the downside throughout the local session, with overnight highs of 105.45 US cents to provide mild resistance with further gains capped below 105.6 US cents. At the time of writing the Australian dollar is buying 105.35 US cent.
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