Fed Officials Unite Behind Taper as Yellen Era Begins: Economy

Federal Reserve policy makers cut the pace of bond buying for a second straight meeting, uniting behind a strategy of gradual withdrawal from Ben S. Bernanke’s unprecedented easing policy as Janet Yellen prepares to succeed him as chairman.

The Federal Open Market Committee said it will trim monthly purchases by $10 billion to $65 billion, citing labor-market indicators that “were mixed but on balance showed further improvement” and economic growth that has “picked up in recent quarters.”

It was the first meeting without a dissent since June 2011, showing the tapering strategy has brought together policy makers concerned the Fed’s record $4.1 trillion balance sheet risks causing asset price bubbles with those who, like Vice Chairman Yellen, say more needs to be done to reduce unemployment.

Policy makers pressed on with a reduction in the purchases, put in place to speed a recovery from the worst recession since the Great Depression, even after payroll growth slowed in December and amid a rout in emerging-market currencies.

The Fed left unchanged its statement that it will probably hold its target interest rate near zero “well past the time” that unemployment falls below 6.5 percent, “especially if projected inflation” remains below the committee’s longer-run goal of 2 percent. Stocks remained lower and Treasuries gained.

(Source: bloomberg)

Aussie Gains to Be Capped as RBA Talks Down Currency

Australia’s central bank probably will succeed in capping the local currency this year as it seeks to boost an economy that’s losing full-time jobs at the fastest pace in two decades, Tokyo-based money manager Diam Co. said.

The Aussie’s biggest annual slide in five years in 2013 didn’t prevent Reserve Bank of Australia Governor Glenn Stevens from reiterating the need for a weaker currency. Diam, which manages about $120 billion, said Stevens probably won’t tolerate Aussie strength while growth remains muted. Daiwa SB Investments Ltd. said it won’t add further to its holdings until the RBA curbs efforts to verbally drive the exchange rate lower.

The Aussie traded at 88.22 U.S. cents as of 9:17 a.m. in Sydney after dropping yesterday to a three-year low of 87.77 cents. It slumped 14 percent in 2013, the most since a 20 percent slide in 2008.

Stevens said the exchange rate was “uncomfortably high” in statements accompanying policy decisions on Nov. 5 and Dec. 3. The RBA board has kept the benchmark rate at a record-low 2.5 percent, having reduced it by 2.25 percentage points since it embarked on the current easing cycle in November 2011.

(Source: Bloomberg)

Aussie Dollar Touches One-Month High After U.S. Jobs Surprise

Australia’s dollar touched a one-month high on prospects a report this week will show jobs grew for a second month, enhancing local assets' allure relative to the U.S., where labor data last week fell short of estimates.

The Aussie completed back-to-back weekly gains on Jan. 10, the first since August, as traders evaluated whether the U.S. data will affect the Federal Reserve’s decisions on further reductions in stimulus that has tended to weaken the greenback. Australia’s bonds rose, sending the benchmark 10-year yield to the lowest level since Dec. 18. The premium over shorter-dated notes narrowed as bets on rate cuts in Australia declined.

Australia’s dollar fetched 90.10 U.S. cents as of 11 a.m. in Sydney, after reaching 90.15 cents, from 89.95 in New York on Jan. 10, when it completed a 0.6 percent weekly advance. It gained 0.2 percent to NZ$1.0852 and was little changed at 93.68 yen.

New Zealand’s currency was at 83.04 U.S. cents from 83.03 and fell 0.2 percent to 86.32 yen.

U.S. employers added 74,000 jobs in December, the slowest pace since January 2011, compared with the median forecast for 197,000 additions in a Bloomberg News poll.

Jobs probably increased by 10,000 in Australia following November’s 21,000 gain, a separate survey showed before the Jan. 16 report.

Australia’s 10-year bond yield fell five basis points to 4.22 percent after touching 4.21 percent. The premium over three-year bond yields reached 1.23 percentage points, the least since Dec. 4.

(Source: Bloomberg)                         

Euro Rises From Lowest in Month as Draghi Strengthens Pledge

The euro rose from the lowest level in a month as European Central Bank President Mario Draghi strengthened his pledge to keep interest rates low for an extended period to protect economic gains.

The greenback touched a four-month high against a basket of peers as initial-jobless claims dropped before the U.S. releases its nonfarm-payrolls report tomorrow. Emerging-market currencies plunged on speculation that forecast U.S. jobs gains will be enough to allow the Federal Reserve to keep cutting bond purchases that have added liquidity to global markets. Canada’s dollar fell to a four-year low.

The euro gained 0.2 percent to $1.3608 at 5 p.m. in New York after declining to $1.3549, the lowest level since Dec. 5. It failed to fall below the 100-day moving average of $1.3546, a measure of momentum. The common currency added 0.2 percent to 142.65 yen. The dollar closed little changed at 104.82 yen.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, dropped 0.1 percent to 1,028.21 after climbing to 1,030.42, the highest level since Sept. 9.

(Source: Bloomberg)        

Aussie Dollar Falls Before Fed Minutes on Bets Taper to Continue

The Australian dollar weakened versus its major peers amid speculation the U.S. Federal Reserve will continue to reduce stimulus that has buoyed asset prices around the world.

The Aussie held its biggest decline in three weeks against the greenback before minutes are released of the Fed’s meeting last month, when policy makers decided to begin tapering bond purchases. A gauge of construction activity in Australia declined in December, a report today showed. The nation’s currency traded near a five-year low versus its New Zealand counterpart.

Australia’s dollar fell 0.1 percent to 89.17 U.S. cents as of 11:04 a.m. in Sydney from yesterday, when it declined 0.5 percent. It was little changed at NZ$1.0774, extending yesterday’s 0.4 percent drop. It touched NZ$1.0733 on Dec. 18, a level unseen since October 2008. New Zealand’s currency weakened 0.1 percent to 82.76 U.S. cents.

San Francisco Fed President John Williams said yesterday quantitative easing will probably end this year if the recovery unfolds as expected. The central bank may reduce its purchases in $10 billion increments and end the program in December 2014, according to the median estimate of economists surveyed by Bloomberg on Dec. 19.

The Australian Industry Group’s construction index fell to 50.8 in December from 55.2 the previous month, according to a report today. Readings above 50 signal expansion.

(Source: Bloomberg)