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Source: wutzkohphoto, Shutterstock
Summary
- Fed’s monetary policy stance to have an influence on the currency market.
- Currency market investors are on the wait-and-watch mode.
- In the past weeks, several currencies have shown weakness against the USD, but the Australian and the New Zealand Dollars remained firm.
All eyes are on Federal Reserve’s March 17 monetary policy meeting. While waiting for the Fed’s stance on bond yields, the currencies world over have seen fluctuations.
The currency market investors are keen to see if Powell shows concern in his policy statement, to be announced on March 17, 2021.
Last week, the US dollar rose against some currencies ahead of the anticipated speech by the Fed chief Jerome Powell. With increased bond yields, the dollar gained even against the Japanese Yen and the Swiss Franc. However, the Australian and the New Zealand dollars remained insulated from these increases.
While the USD lost against the Australian and the New Zealand currencies last week, it stood firm against both the currencies this week. The Australian dollar was range bound, down only three basis points at AUD 0.7752, pretty much in the range of AUD0.75 and 0.80.
The New Zealand dollar remained unchanged at NZ$0.7199, far from its February high of NZ$0.7464.
The currency market is waiting for the Fed announcement because the huge movement in the US bond yields will prove to be a big mover and shaker for the equity as well as currency markets.
While some economists are expecting that Fed might want to cool off the bond markets, the majority opinion is that the Fed chief might want to keep the policy settings unchanged.
If the government takes some action and buys the bonds to keep the yields lower, the USD will move down and other currencies will gain. But if the yields move higher, the USD will gain strength against other currencies.
Analysts are bullish on the Australian and the NZ dollars and say that they are likely to continue rising as both the countries are going through the economic recovery, as a result they will benefit from a spurt in global trade.
Australian three-year bond yields were marginally changed at 0.103%.
New Zealand’s government bonds were higher with yields lower by 6-8 basis points.
