US dollar sell-off bodes well for Aussie and Kiwi

SYDNEY - March 29, 2016 - PRLog -- The Aussie dollar is on a tentative footing this morning on the back of recent US dollar sell-off despite the US Federal Reserve's comments.

"The Aussie has been a bit hesitant this morning as we saw a sell-off on the greenback overnight," said Stephen Innes, senior trader at FX and CFD broker OANDA Australia and Asia Pacific.

"The US Fed's statement all but opened the door for a continued dollar slide. But there're a few things sticking out that might present short-term resistance," Innes said.

"Dr Yellen's speech was decidedly more dovish and arguably more dovish than even her post-FOMC March press conference," said Innes.

"Needless to say, her speech was the major driver in foreign exchange markets. We saw a broad sell-off on the USD on the back of this aggressively dovish forward guidance as traders aggressively scaled back their USD rate hike projections for 2016,"

"Two factors are standing out in her speech and not unexpectedly the economic slowdown in China and falling oil prices present the biggest obstacle to returning to interest rate normalisation," he said.

The China factor

He added, "Yellen's concern about China's economic recovery should send ripples through the Reserve Bank of Australia and given the fact Governor Glenn Stevens is likely less than happy with the Aussie above .7600, it brings into question a possible RBA rate cut."

"I'm not overly surprised the Fed is erring on the side of caution,"

"However, the fear is that investors start to believe the Fed's toolbox is empty if they need to deal with any additional domestic or global economic shock," added Innes.

According to Innes, investor conviction is running high that global central bankers, including the US Fed, will keep interest rates lower for longer.

"In a nutshell, the currencies are benefiting from investors yield appetite," Innes said.

On a related development, Innes pointed the Kiwi dollar's positive movement overnight.

"The NZD/USD was the best-performing G10 currency overnight with the Aussie a close second as the USD selling centred on the high-yield commodity block currencies,"

"Traders flocked into the Kiwi and bought the Aussie playing off higher yields down under."

Looking forward, there are several high risks events that will play a huge role in local trader sentiment.

"All eyes are on now on the High Risk US non-farm data which is due Friday," Innes said.

- ENDS -

For more information, visit: https://www.oanda.com/forex-trading/why/