The Australian dollar rallied strongly overnight as Janet Yellen again hinted that the US Fed may not be so quick to raise interest rates as markets had been predicting at the start of the year. Yellen said, with regard to raising rates, that the Fed should proceed only “cautiously” as “inflation has not yet proven durable against a backdrop of looming global risks to the US economy, including still-low oil prices and China.”
The Fed is walking a fine line between wanting to sound tough on inflation yet being very worried about being left with a rising currency as other central banks continue to devalue. A too-strong US dollar might kill off a growing economy yet the Fed is also aware that if inflation starts to rise too quickly the risks to the domestic economy may be quite large.
The AUD rose over 1% to US$0.7645.