Australian Dollar Strong as U.S. Dollar Remains Soft

 
   By James Glynn 
 

        SYDNEY--The Australian dollar was strong in Asia Monday amid further weakness in the U.S. dollar after last week's surprisingly dovish Fed statement.
        At 0430 GMT, the Australian dollar was trading at US$0.7823, up from US$0.7700 late Friday. In Asia, the ICE spot dollar index was quoted around 97.83 versus 99.02 early Friday.
        The U.S. Federal Reserve last week lowered its growth and inflation forecasts, while staying cautious about the health of the labor market.
        "Considerable progress clearly has been achieved, but room for further improvement in the labor market continues," Fed Chairwoman Janet Yellen said after a two-day meeting.
        With little or no new data emerging locally, the focus of traders remained exclusively on international matters.
        Greg Gibbs, currency strategist at RBS, based in Singapore, said the market was a little confused. "I guess it's the market still adjusting to the dovish shift by the Fed last week," Mr. Gibbs added.
        Sean Callow, currency strategist at Westpac attributed the gains to "post-FOMC" selling.
        The head of currency forecasting at National Australia Bank, Ray Attrill, said the dovishness of the Fed prevented a further downgrade of the currency.
        Mr. Attrill said the forecasting team at NAB discussed lowering its expectations of the Australian dollar based on the ongoing decline in iron ore prices.
        While ongoing multi-year lows for iron ore represent a compelling reason to lower the forecasts, an offset arrived last week in the shape of dovish commentary by the U.S. Federal Reserve, Mr. Attrill said. NAB maintained its call of US$0.7400 by year-end and US$0.7300 by end-2016.
        The strength of the Australian dollar remains all the more perplexing as many forecasters expect the Reserve Bank of Australia to cut interest rates in April.
        ANZ economist Katie Hill said concerns about rising house prices won't derail another cut,
        "While we continue to think the Bank remains watchful of housing market speculation, particularly in Sydney, its concern is unlikely to stand in the way of another rate cut," Ms. Hill said.
        The cash rate target was cut by 25 basis points to 2.25% in February. Financial markets are priced for one more cut in coming months, with another possible before the end of the year.
        -Write to James Glynn at james.glynn@wsj.com
        (END) Dow Jones Newswires

        March 23, 2015 01:23 ET (05:23 GMT)

#FX
#Forex
#AustralianDollar
#DollarSoft
#DollarWeak