Risk aversion saw the greenback gain the upper hand on Friday as US equity markets tumbled under the weight of renewed concerns the Fed may unwind economic stimulus. Although leading indicators such as last week's GDP result are providing positive signals, the premise of the removal of stimulus saw over 2.5 percent wiped from Wall Street.
This Wednesday in the US will be the defining factor with Fed interest rate decision and subsequent release of the minutes. Although policy makers have in the past signalled intent to keep record-low interest rates on hold for an extended period, investors are growing nervous that the Fed will take proactive measures to rein in economic stimulus and also anticipate further insight into interest rates going forward. By default, greenback strength saw the Aussie plummet back down towards 90 US-Cents losing over 155 pts on Friday and continues to weaken as local investors digest a disappointing lead from the states.
The usual moderate start to the week has been replaced with volatility in the currency markets this morning with the local unit trading in an 80 pt range. At the time of writing the Aussie Dollar is buying US$.8965 and support remains weak with Australian equity off to a horror start on the back of a commodity losses on Friday, namely Crude Oil which fell over 3.5 percent. This switch in investor mood has fuelled a broad based sell-off in key commodities with the Aussie following suit as a currency highly contingent to commodity movements. Interest rate speculation is likely to fuel volatility today, ahead of tomorrow's RBA rates decision with which a market majority is expecting a 25 bp hike.