By Glenda Kwek
The Australian dollar has jumped back above 94 US cents, on bets the US Federal Reserve won't start cutting stimulus this year, after Fed chairman Ben Bernanke's dovish speech.
Mr Bernanke flagged that interest rates would remain low for a "considerable time" after quantitative easing ends.
The sale of new 20-year Australian government bonds also pushed the local currency higher, currency strategists said.
The Australian dollar jumped to as high as 94.48 US cents this morning after Mr Bernanke's remarks were released ahead of his speech. It later eased slightly, and was trading at 94.21 US cents about 2.30pm.
At the same time, the RBA's assistant governor for financial markets, Guy Debelle, continued the central bank's approach of talking down the Australian dollar, saying in a Sydney speech today that he would welcome the end of the Fed's bond-buying program, which has kept the currency at elevated levels.
The currency was already stronger overnight on the back of comments from China that the world's second-largest economy and Australia's biggest trading partner was set to liberalise its exchange rate. The Australian dollar was buying as low as 93.53 US cents yesterday.
"With Bernanke's comments just out, people are realising that the Fed isn't just going to get on the taper and pull back stimulus in the near-term. It's probably going to begin in March or April next year," Rochford Capital senior consultant Richard Breen said.
"With all the dovish talk from Bernanke, Yellen, Dudley, Evans, [traders] realise that the Fed isn't going to go immediately." Previous expectations that the Fed was set to start its tapering program in September saw the US dollar strengthen across the board and push the local currency lower.
Fed holds key to lower Australian dollar: Debelle
Mr Debelle said it would be a "desirable thing" to hear that the US Fed had begun to taper because that would mean the US economic outlook was strengthening.
But until then - as long as the Fed's bond buying program remained unchanged - Australia's dollar would likely remain at a higher level.
"As we've said on a number of occasions, we would prefer [the Australian dollar] to be lower [and] one major thing that would do that would be the day when [the US Fed] changes its monetary policy direction," Mr Debelle said.
"The sooner that day comes the better, but that's not in our hands - it's in theirs."
Yuan reforms still in early stages
People are realising that the Fed isn't just going to get on the taper and pull back stimulus in the near-term
Analysts said while China was signalling less frequent intervention in the foreign exchange market, any major reforms of its approach to the yuan were still in the early stages.
"Everyone's assumption is that reforms will take place, but to put it pretty simply, today we are none the wiser than we were yesterday on terms of any timing. This is a long-term process that's likely to continue," Commonwealth Bank currency strategist Peter Dragicevich said of People's Bank of China governor Zhou Xiaochuan's comments.
"We had expected the Chinese to widen their daily trading band at some point. We thought it could happen possibly this year. But in terms of moving down that track we're still a long way away from all the reforms that are taking place."
Mr Breen said the Australian dollar could face more upside bias in the near-term as expectations increase that the Reserve Bank may have reached the end of its current easing cycle amid a boom in the housing market.
"I think the RBA are done for now. I think with them acknowledging house prices in the minutes [released yesterday], ... as much as they would love to have the Aussie down, I don't think they can really control what's going on there," Mr Breen said.
He added that the new 20-year government bond issue, which raised $5.9 billion from investors, also pushed the local currency higher.
"It's the final bond issue for the year (of this Treasury bond) until April. So there would be probably be a fair few investors out there looking for that reasonably-nice chunky yield on triple-A-rated debt," Mr Breen said.
Lower US rates for longer
A delay in the raising of US interest rates could see the Australian dollar remain at elevated levels for a longer period of time, which could continue the headache for the Reserve Bank, NAB currency strategist Emma Lawson said.
Ms Lawson said the extraordinary monetary policy actions taken by some countries following the financial crisis, such as the use of quantitative easing, has meant all central banks have had to readjust their own policies.
Mr Debelle said earlier this month that the Fed's quantitative easing measures may have created problems for smaller economies.
Mr Bernanke said in his speech today that rates were "likely to remain near zero for a considerable time" after the end of the central bank's $US85-billion-a-month ($90.3-billion-a-month) bond-buying program.
He added that a "more robust recovery" of the US economy was the "surest path to a more normal approach to monetary policy".
"The FOMC remains committed to maintaining highly accommodative policies for as long as they are needed," Mr Bernanke said.
But he said that the quantitative easing program would be scaled back eventually.
"The FOMC still expects that labour market conditions will continue to improve and that inflation will move toward the 2 per cent objective over the medium term. If these views are supported by incoming information, the FOMC will likely begin to moderate the pace of purchases," Mr Bernanke said.
with Gareth Hutchens