Accelerated Rise Due To US Rate Cuts

By Petra Amelia on September 22nd, 2007

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THE likelihood of another US Federal Reserve interest rate cut over the next few months is fueling expectations the Australian dollar may hit US90 within months.

Most of Australia’s big currency traders are expected to release revised forecasts for the Aussie next week in response to the Fed’s rate cut.

This week the Aussie soared 4.1 per cent to almost US87 after Fed chairman Ben Bernanke cut interest rates by 50 basis points to 4.75 per cent to try to head off a US economic downturn.

The first US interest rate cut in four years has seen the US dollar drop against most of its major trading partners, including to its lowest level against the Euro.

Deutsche Bank foreign exchange strategist John Horner refused to reveal the group’s re-worked forecast, due for release on Monday, but said the Aussie was likely to “move higher” in the near term.

But AMP Capital Investors chief economist Shane Oliver said the Fed would probably cut interest rates one or two more times this year and the Aussie may hit US90.

“US economic data is likely to be on the soft side over the next few months and inflationary worries will fade,” he said. “And we may see the Fed Funds rate falling to 4 per cent by early next year.”

The Australian dollar hit US88.36 in July but the credit crunch caused by the meltdown of the sub-prime mortgage sector sent it tumbling back to below US80.

Article Source: News.com.au

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