Australian Dollar (AUD) and New Zealand Dollar (NZD) Exchange Rate Forecast Improves After Mixed Yellen Comments

February 10, 2016 - Written by Tim Boyer

STORY LINK Australian Dollar (AUD) and New Zealand Dollar (NZD) Exchange Rate Forecast Improves After Mixed Yellen Comments

FX Market Volatility Provoked by Lord Turner Comments

As the former head of UK’s Financial Services Authority, Adair Turner is an industry insider that investors listen to. When Lord Turner gave his view on the likely trajectory of global interest rates earlier today, market participants holding a range of currencies, but in particular the Pound Sterling (currency : GBP) and the US Dollar (currency : USD) sat up and took note.

Turner forecast that global interest rates are likely to be remaining at their current ultralow levels ‘almost indefinitely’ and predicted that, ‘interest rates in the UK may not go up beyond 2% by 2020’.

Turner’s expectations of a continuation of ‘easy money’ from the world’s central banks hit the Pound and the Buck harder than most, given investors’ previous expectations that the Bank of England and the US Federal Reserve would be steadily increasing their respective headline lending rates throughout 2016.

Turning to the potential that the British electorate may vote to leave the European Union before the year end, Turner piled further pressure on the UK unit when he stated that, ‘there is a great deal of nervousness that a UK vote for Brexit is another layer of uncertainty in an extremely uncertain world - uncertain economically and uncertain politically.’

Dovish Yellen Weighs on USD Exchange Rates, AUD and NZD Gain

Elsewhere, the Federal Reserve Chair Janet Yellen provided written testimony to the US House of Representative’s Financial Services Committee and the upshot is likely to trigger movement in the markets. Yellen emphasised her recent message that economic conditions in the US are in danger of faltering due to external influences including, but not limited to, the ongoing slowdown in China, stress from ultra-low oil prices and downbeat local corporate earnings.

However, Yellen’s assertion that her bank will tailor its monetary policy in accordance with these factors led market participants to price-in a lower chance of further Fed interest rate hikes this year. In fact, markets now predict a greater chance of a rate cut during the next two meetings than an increase. Equities markets recorded decent gains in response to Yellen’s words and analysts upped their forecast for the risk-driven Australian Dollar (currency : AUD) and New Zealand Dollar (currency : NZD). On the negative, investors are likely to make a big deal out of the fact that she failed to rule out negative interest rates completely when asked about the possibility, stating that the legal issues regarding cutting rates below zero would need to be investigated further.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: American Dollar Forecasts Australian Dollar Forecasts New Zealand Do Forecasts