Fed's Plosser flags QE3 risks; Yen leads, A$ lags

Demand for risk reversed throughout the US session overnight with global growth concerns remaining a key directive for overall risk trends. Broad-based negativity was compounded after Fed Philadelphia President Charles Plosser made perfectly clear his view the Fed’s latest stimulus effort carries more risk than merit, noting “We are unlikely to see much benefit to growth or to employment from further asset purchases,” while adding the risks associated “could prove quite costly to the economy.” Charles Plosser is not a current voting member of the Federal Reserve.

Nevertheless, there were some bright spots throughout the session in terms of data releases with US consumer confidence outpacing expectation to rise to a 7-month high and a solid housing report with the Case-Shiller home-price index increasing for the third consecutive month, adding credence to the view the US housing market is in a recovery phase.

It’s clear QE3 has taken a back seat to broad negativity surrounding growth prospects with investors focusing on fundamentals rather than the short-term merits of QE3. It is also possible markets have developed immunity to each new round of Fed easing, suggesting the impact will be less of a shock then previously, while a steep dollar sell-off in the lead up to QE3 may indicate any optimism was well and truly baked in. Nevertheless, there’s a good portion of the market waiting for a second wind with a valid case to suggest markets have priced a fair degree of ‘bad news,’ and a return to a stimulus-focused market is imminent.

The Japanese Yen led safe haven offensive higher with the greenback close behind coinciding with a drop from key risk barometers such as U.S equity markets.  After trading to highs of 1.2972 earlier, the Euro retreated over the course of trade to current levels of $US1.2910. A move to the perceived safe-haven units came at the expense of the Aussie dollar after peaking at highs of 104.63. In the absence of local market moving data today, we anticipate regional equities will continue to provide direction for risk currency trends in the domestic session. At the time of writing the Australian dollar is buying 103.8 US cents. The DEWR Internet Skilled Vacancies is scheduled for release at 11am AEST.

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