Dollar nears two-week high

The local unit was trading hands near a two-week high, boosted by Lowe’s and Yellen’s comments.

Bets continue to be laid on a Fed rate increase before the end of the year.

The Australian dollar was trading close to its highest level in two weeks on Thursday afternoon, after the US Federal Reserve held back from raising interest rates at a policy meeting overnight.

At 3pm (AEST), the Australian dollar was trading at US76.37 cents, up from US75.36c at the same time on Wednesday.

The Fed opted to hold its key short-term interest rate steady and cut its 2016 growth forecast for the US economy to 1.8 per cent, from a 2.0 per cent projection in June. The central bank also lowered its long-run view on the economy’s growth rate to 1.8 per cent from 2 per cent.

Still, bets continue to be laid on a Fed rate increase before the end of the year. According to a Chicago Mercantile Exchange’s FedWatch tool, there is a 59.3 per cent chance of a change in interest rates at the December meeting, a touch higher than the previous day’s probability.

The US dollar was broadly weaker in Asian trade on the Fed outcome.

RBA Governor Philip Lowe also made comments before lawmakers that the central bank won’t be overly doctrinaire in enacting policy around its 2 per cent to 3 per cent inflation target.

“It is worth emphasising that ever since the adoption of the current framework, the Reserve Bank has been a proponent of what is known as flexible inflation targeting,” Mr Lowe said.

Mr Lowe pointed to the fact that inflation remains entrenched below the desired 2 per cent to 3 per cent target, but added that trying to get inflation back into the band too quickly might have consequences for financial stability.

“We have not seen our job as always keeping inflation tightly in a narrow range. We have not been what some have called “inflation nutters,” he said.

Rates have been cut twice already this year as inflation has surprised to the downside.

“We have had a more balanced perspective, recognising that some degree of variability in inflation from year to year is both inevitable and appropriate,” Mr Lowe said.

Dow Jones