More evidence of the crazy ways markets respond to quantitative easing (QE) measures.
Ben Bernanke suggesting diminishing risk to the US economy which implies that the Federal Reserve may pare back the stimulus in the US leading the Dow Jones Index to shed more than 200 points on the trade, or 1.4%.
It is still not expected that US interest rates will be lifted until 2015 and until unemployment reaches the 6.5% level.
Reports SMH:
"The Fed has held overnight interest rates near zero since December 2008 while more than tripling its balance sheet to around $US3.3 trillion with its bond buying. In its current and third installment of so-called quantitative easing, it is purchasing $US40 billion in mortgage-backed securities and $US45 billion in longer-term US government securities each month."
Naturally a potential paring back of the stimulus is interpreted by currency markets as effectively strengthening the greenback.
And just like that...look at the Aussie dollar get absolutely crunched, straight down from 95.5 cents to 92.67 cents in a heartbeat!
Currency movements are never good news for everybody, of course, but this should help Australia's exporting economy along and it is fabulous news for those of us who have patiently been sitting short of the Aussie for some time now.
It's likely to be a weak day for Aussie stocks with ASX futures down 1.1%, but the weaker dollar may see dollar-exposed industrials have a brighter period ahead.
Source: Yahoo
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