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Australian dollar hits new post-float high after US central bank move

THE Australian dollar reached new post-float highs above $US1 today after the Federal Reserve's decision on a new stimulus plan.

The Australian dollar rose to $US1.0057, up from yesterday's domestic close of US99.68c. Analysts said the Australian dollar could easily hit $US1.01 if retail sales data to be released later today were strong.

The Fed’s $US600 billion plan to buy US Treasuries was larger than expected, Commonwealth Bank currency strategist Joseph Capurso said.

"It's a bigger package than we thought; that means US dollar weakness," he said.


The greenback had dropped sharply in extremely volatile trading in the initial wake of the Fed statement, but soon recovered much of that loss to emerge only modestly lower, with the ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, down about 0.3 per cent.

Investors had expected roughly $US500bn in Treasury purchases over five to six months, said Vassili Serebriakov, foreign exchange strategist at Wells Fargo in New York.

The Fed announced a $US600bn package over the span of eight months, walking a tightrope of not disappointing investor expectations -- which would have likely led to big US dollar gains --and not engaging in a shock-and-awe campaign of massive Treasury purchases, which would have led to a sharp, sustained dollar loss, Mr Serebriakov said.

"Once the market read into the details," the US dollar recouped its initial sharp losses, he said.

In late New York trading, the euro was at $US1.4122 according to EBS via CQG, up slightly from $US1.4034 in the previous New York session. The US dollar was at Y81.13, up from Y80.64, while the euro was at Y114.59, up from Y113.19. The ICE Dollar Index was at 76.396, down from 76.731.

While the US dollar recovered from its initial, sharp losses against its rivals, the Fed's easing stance likely puts the greenback on a course for longer-term weakness, said Alan Ruskin, global head of G10 foreign exchange strategy at Deutsche Bank in New York.

The global recovery continues on track, even if the US contribution to the recovery has slowed.

Still, early in the New York session, the US posted better-than-expected figures on private jobs, factory orders and an indicator of service-sector activity.

"Fed easing is taking place in the context of stronger US and global data that will further show up the divergence between US policy and the policy in stronger," countries, such as Australia, and emerging Asia and Latin America, Mr Ruskin said.

Investors are likely to take the Fed's signal of cheap US dollars to use the greenback to fund bets on those riskier, higher-yielding currencies, Mr Ruskin said.

So-called quantitative easing pushes down longer-term interest rates and push out the time frame for normalising monetary policy, both of which weigh on the US dollar.

Though it fell against its other rivals, the US dollar managed to hold on to a sharp gain against the yen. The greenback's gains came on the better-than-expected US data

The US dollar's strong move higher against the yen had prompted some speculation Japanese officials were intervening in currency markets to stem recent yen strength, but analysts said there were no signs of intervention.

"The question is, will the Bank of Japan intervene again?" said John McCarthy, manager of currency trading at ING Capital Markets in New York.

If the US dollar begins to slip against the yen, a breach of Y79.75 could trigger an official Japanese response to prop the US dollar, McCarthy said. The Y79.75 level has held stood since April 1995 as the US dollar's lowest point in the post-World War II era.


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