The US dollar advanced against risk-sensitive currencies including the Australian dollar, New Zealand dollar and Canadian dollar in early trading on Thursday. The move came after a gloomy economic forecast from the Fed and reports of rising coronavirus cases in the US.
Federal Reserve policymakers projected on Wednesday that US gross domestic product will fall by 6.5% in 2020 and that the unemployment rate will reach 9.3% by the end of the year. As expected, the Fed made no policy changes at its June meeting and promised to maintain its asset purchases.
Fed Chair Jerome Powell was slightly more dovish than expected in his statement, emphasizing that low rates are here to stay. He said; “We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates” before adding “What we’re thinking about is providing support for the economy. We think this is going to take some time.” Interest rates are now expected to remain near zero through 2022.
The dollar initially made fresh three month lows after the FOMC meeting. Low interest rates make the dollar less appealing in relation to other higher yielding currencies and typically pressure the greenback. Meanwhile, the reaction in equity markets was mixed. The Nasdaq hit 10,000 for the first time ever, but the Dow and S&P 500 both closed lower.
Expectations for a fast recovery from the coronavirus were curbed by the Fed outlook and also a report from Reuters indicating that new US coronavirus infections are rising slightly after five weeks of declines. Data from Johns Hopkins University states that coronavirus COVID-19 global cases have risen to 7,360,239 with 417,022 fatalities.
Risk-off sentiment early on Thursday boosted safe havens such as the US dollar and Japanese yen and weighed on risk-sensitive currencies. Looking at the AUD/USD weekly chart we can see that price has pulled back from 11 month highs and that a shooting star or doji pattern may form.