FED interest decision likely to impact AUD exchange rates further, should the FED taper the Aussie could weaken (Mike Vaughan)

Michael Vaughan

Australian Dollar exchange rates began the day in strong fashion and continued to show strength against the pound even though the UK GDP figures this morning were as strong as expected. Currently some of the higher risk currencies such as the Australian Dollar are experiencing some significant swings in value with the spread today ranging from 1.873 to 1.8923 and EUR/AUD 1.5487 to 1.5661. Much of thi volatility has come about through lack of investor confidence as seen in emerging markets and the impact this has had on the stock market. With the US stock market having had one of the worst weeks in the past couple of years this makes tomorrow evenings FED interest rate meeting all that more important – will they or wont they continue with the tapering of QE?

For me I believe Bernanke, holding his last interest rate meeting before Janet Yellen takes over in February, is likely to add to the $10bn tapered in December and I would expect a further $10bn and I would look to see a weaker Aussie as a result. Any deviation from this and expect some significant market volatility.

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