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Aussie dollar dips below parity with the greenback

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The Australian dollar briefly fell below parity with the greenback on Thursday afternoon, on concerns that the US Federal Reserve was not doing enough to stimulate America’s ailing economy.

At 1236 AEST, the local unit reached 99.92 US cents, the lowest since August 9 and down from 102.81 US cents at the end of Wednesday’s local session.

It fell heavily in offshore trade on Wednesday night after the US Federal Reserve announced new measures to support the American economy.

The Federal Open Market Committee (FOMC), the Federal Reserve’s monetary policy setting arm, kept its key interest rate target at an ultra-low zero to 0.25 per cent overnight, saying economic growth “remains slow”.

In a revival of the Fed’s 1961 “Operation Twist” bond-buying program, the central bank said it would sell short-term bonds and purchase, by the end of next June, $US400 billion of Treasury securities with six- to 10-year maturities.

RBC senior economist Su-Lin Ong said traders were sceptical as to whether the Fed’s plan would be enough to generate growth.

“This isn’t technically (another round of) quantitative easing because there is really no change to the money supply,” Ms Ong said.

Meanwhile, Reserve Bank of Australia (RBA) assistant governor Philip Lowe comments on household saving and spending levels, in a speech in Sydney on Thursday morning, revealed little new information, leaving the Australian dollar largely unchanged, Ms Ong said.

“The underlying message from the RBA is that consumption probably does look a bit better than the popular perception, but that’s been noted a number of times.”

At 1200 AEST the Australian dollar was trading at 100.69 US cents and has traded as high as 100.76 US cents since 0700 AEST.

Meanwhile, Australian bonds were firmer at noon.

At 1200 AEST on Thursday, the December 10-year bond futures contract was trading at 95.870 (implying a yield of 4.130 per cent), up from Wednesday’s close of 95.775 (4.225 per cent).

By 1308 AEST, the contract reached 95.910 (4.090), which was its highest level in two-and-a-half years.

The December three-year bond futures contract was at 96.460 (3.540 per cent), up from 96.370 (3.630 per cent).