Australian dollar higher despite US interest rate hike

Canberra, Dec 17 (IANS) The Australian dollar on Thursday rose above 72 US cents from subdued market reaction to the U.S Federal Reserve’s first interest rate hike in almost a decade.

At 7.00 a.m. (local time), the local unit was trading at 72.56 US cents, up from 72.06 cents on Wednesday’s Asian close, Xinhua news agency reported.

The US dollar initially gained when the central bank raised the funds rate by 25 basis points to between 0.25-0.50 percent, sending the Australian dollar lower to 71.11 US cents after the announcement.

The Australian dollar quickly recovered as the US was sold off given the only uncertainty was the pace and trajectory of rate increases, which the Federal Reserve left the upper-bound rate unchanged at 1.25 percent for 2016 while maintaining their projection of a “longer run” 3.5 percent funds rate.

“By and large the Fed has delivered on market expectations, hence a fairly muted reaction,” Ray Attrill, National Australia Bank’s global co-head of FX strategy, said.

Historically, the Australian dollar has usually out-performed most currencies as the US central bank begins lifting interest rates, however the downward pressure from the disconnect with commodity prices suggests the track record will be tested.

“We suspect that when the dust settles on the Fed’s pronouncements (not that much has been stirred up so far) the US dollar will gain a little more traction -and with that the Australian dollar will drop back below 72 US cents,” Attrill said, expecting the Aussie to trade near 70 US cents in the coming weeks.

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