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The Australian dollar is a clear victim of the action and the inaction by the Federal Reserve. AUD/USD already lost already 200 pips and is getting close to parity.  

The Aussie managed to pierce through parity when QE2 was announced back in November. What goes around comes around. Big time.

The Australian dollar is a “risk currency” that enjoys global optimism. It’s high interest rate (4.75% at the moment) attracts funds when the world’s economy is on the rise. When the wind changes direction, this high yield doesn’t appeal anymore.

In addition to not introducing QE3 and not taking extra steps to stimulate the economy, the Fed altered the language of the statement and described the downside risks as significant.

In addition, commodities got a boost from QE2. Without QE3, commodities have room for falls, or  deleveraging  if you wish. Lower commodity prices, especially copper, hurt Australia’s economy.

Aussie/USD is currently at 1.0040, down from around 1.0240 before the FOMC statement was released. AUD/USD could be challenged during the next sessions. Further support below parity is at 0.9930, the pike low seen in August. Resistance is at 1.0120, followed by 1.0180.

For more lines and analysis, see the Australian dollar forecast.