$A surges on QE3 but it won't be for long

14 Sep 2012, 3:50 pm   -   Source: AAP
The Australian dollar's surge after the US Federal Reserve stimulus announcement is not expected to last too long. (AAP)

The Australian dollar's surge after the US Federal Reserve stimulus announcement is not expected to last too long. (AAP)

The Australian dollar rallied after the US Federal Reserve announced another round of economic stimulus but the rally is not expected to last.

The Australian dollar's surge after the US Federal Reserve stimulus announcement is not expected to last too long.

The US Fed said it would spend $US40 billion ($A38 billion) a month to buy mortgage-backed securities for as long as it took to reduce the unemployment rate.

The move announced on Friday morning, Australian time, is aimed at dragging down long-term interest rates for lenders to encourage more borrowing.

"The idea is to quicken the recovery," Fed chairman Ben Bernanke later told a news conference in Washington DC.

The Australian dollar shot up over one US cent immediately after the news, the Dow Jones index rose 200 points and the gold price also surged.

CMC foreign exchange dealer Tim Waterer said the big unknown was how long the current market exuberance would last.

"There is a chance that it will be carried forward into the next several weeks, based largely on the fact that Bernanke over delivered," he said.

"I point to the fact that there was no deadline on when the mortgage-backed securities purchases would cease and there was an extension of the low interest rate time horizon (to at least mid-2015)."

Mr Waterer said the Australian dollar's rise in the short term would be capped in a region between 106.50 US cents and 106.75 cents.

"I think what could get the Australian dollar through that region and to 107 US cents if commodity prices rally, primarily due to the weakness in the US dollar," he said.

"What we heard from Bernanke last night was very much US dollar negative and the commodity price story paints that picture clearly with gold not too far from $US1,800 ($A1,714) an ounce."

LTG GoldRock director Andrew Barnett said he expected the Australian dollar's current run to peak between 105.50 US cents and 106.50 cents.

"We will probably see some weakness in the next week or two," he said.

"I think the market is probably a bit stretched but it is probably going to take a few days for things to die down and reality to hit again."

Mr Barnett said he expected the Australian dollar to weaken after the initial post-QE3 burst.

"I think we will see the Aussie dollar drift between 101 US cents and 106 cent for the rest of the year and then I see the bubble bursting in 2013 and it moving back below parity.

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