Australia’s dollar approached a two-month low on concern the Federal Reserve will curb stimulus that has propped up asset prices worldwide, undermining the attractiveness of the currency as a higher-yielding asset.
The Aussie dropped yesterday by the most in three months after minutes of Fed officials’ last meeting showed $85 billion of monthly bond purchases might be reduced in coming months. The negative correlation between U.S. Treasury yields and the South Pacific nation’s currency has fallen to a seven-year low, signaling they are more likely to move in opposing directions. The International Monetary Fund said Australia’s currency “looks overvalued by around 10 percent.”
“At this stage, tapering is the dominant driver instead of global growth,” said David de Ferranti, a Sydney-based market analyst at FXCM Inc. “It’s possible that U.S. dollar demand will outweigh demand for the Australian dollar as a risk currency” toward the end of March, he said.
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