The Australian share market has climbed higher as the US Federal Reserve decides whether to hike its benchmark interest rate.
The US Federal Reserve’s decision to hold off on raising interest rates fuelled concern about global economic growth.
The Fed’s decision raised the possibility that countries with an easing-bias could consider further cuts, IG market analyst Angus Nicholson said.
“The Fed outcome has provided risk-on sentiment for local equities and the rupee”, said Rohan Lasrado, Mumbai-based head of foreign-exchange trading at RBL Bank Ltd. “It clearly shows that the Fed is also watching other markets before taking a decision on its policy“.
The greenback fell against most of its major peers after policy makers kept borrowing costs at a record low Thursday, citing low inflation, an uncertain outlook for global growth and recent financial-market turmoil.
The Bloomberg Dollar Spot Index weakened 0.1 percent to 1,200.55 at 12:24 p.m.in Tokyo and touched 1,199.34, the lowest since August . 26. Rates futures placed an 11 percent chance on Friday that the Fed would raise rates in October, down from 41 percent early on Thursday, according to CME Group’s FedWatch program.
Two factors make a rate hike in the USA particularly unwelcome to countries like South Africa and Turkey, whose currencies buckled in anticipation of Thursday’s much-awaited decision. “Communicating the future path of interest rates is very important and the Fed would be careful not to signal any excessive tightening given global markets are still very vulnerable”.
Briefing.com said the consensus estimate was the rate would be unchanged. The Fed will probably boost rates in December, although it may delay lift-off until the first quarter if it remains concerned a strengthening dollar will hurt exports, said Jim McCaughan, chief executive officer of Principal, which manages about US$350bil. “The New Zealand dollar is reluctant to rally against the USA dollar”. Analysis by French bank BNP Paribas shows that a steady erosion of bets for more appreciation since March has left positioning on the US currency flat, meaning relatively few longer-term players will be forced to sell if the Fed does not deliver a rise.
The ICE U.S. Dollar Index, a measure of the buck’s strength against a basket of six rival currencies, was down 1.1% at 94.4150.