Ben Bernanke unleashed the bullish devil and announced a third round of Quantitative Easing, known as QE3. The Fed will continue to purchase Treasuries under the maturity extension program (Operation Twist) and will begin buying $40 billion of agency mortgage-backed securities (MBS). The total value of the these two programs is valued at $85 billion until the end of the year. The pledge for low rates was also extended until mid-2015, a move that assisted in the weakness of the US dollar against a basket of currencies. Part of the program is to reinvest the prepayments it receives from its $800 billion agency MBS on a monthly basis. The labour market will be the key data to monitor as additional stimulus may be provided if the employment data remains sluggish. The open-ended commitment of the Fed aside the new stimulus is what caused the great bullish momentum in EUR/USD.
The Currency Wars, AUD/USDFor those who believe the Fed's actions will sustain a weak US dollar until the end of the year may wish to reconsider their views. Take AUD/USD as an example. A strong Australian dollar may harm the Australian economy as their exports are now becoming overly expensive. Also China manufacturing sector is contracting, favoring the odds less goods will be imported from Australia.
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