Dollar slips in late trade but remains above US76c

The local unit has softened but remained above US76c, as the market looks ahead to Jackson Hole.

Stacks of Australian one dollar coins. Focus on front coin.

The Australian dollar was weaker on Monday after comments on by US Federal Reserve Vice Chairman Stanley Fischer on Sunday, which saw bets on a near-term interest rate increase rise.

Mr Fischer, the Fed’s second-highest ranking official, told a conference in Aspen Colorado, the central bank is close to hitting its targets for US employment and inflation.

“Looking ahead, I expect GDP growth to pick up in coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes,” he added.

Mr Fischer added that core inflation is “within hailing distance” of the Fed’s 2 per cent target and that employment had increased “impressively” since its nadir in 2010.

Odds of a US rate increase by December, as measured by federal-fund futures, were slightly higher.

In late afternoon trading on Monday, the Australian dollar was swapping hands at US76.11 cents, down from US76.26c at the same time on Friday.

The comments have heightened expectations around a speech by Fed Chair Janet Yellen at a central banking conference at Jackson Hole, Wyoming, at the end of the week.

“It will be interesting if she takes on the slightly more hawkish rhetoric of some of her colleagues of late, as that could potentially shake markets up a little,” ANZ Bank said in a research note.

Locally, the recent stubborn strength in the Australian dollar has led ANZ to revise up its near-term forecasts for the Australian dollar. ANZ now expects the currency to be trading at US76c, compared with an earlier forecast of US67c.

Daniel Been, currency strategist at ANZ said a strong, post-Brexit rally in the Aussie dollar drove the change.

“We cannot identify near-term drivers of a significant depreciation,” he added.

There are good reasons to remain a believer in the Australian dollar, said Elias Haddad, currency strategist at CBA.

The prospect of more accommodative monetary and fiscal policies is supportive of the global economic outlook; commodity prices continue to recover, which benefits Australia’s terms of trade; Australia’s economy is growing at an above-trend pace of 3.1 per cent on-year; real Australian interest rates remain a magnet for foreign capital in the current global environment of ultra-low and negative rates, he said.

- Dow Jones newswires