Australian Dollar Rises As Most Asian Stock Markets Trade Higher

Isaac Cain
July 14, 2017

Yellen reiterated the Fed's view that interest rate increases in the USA would be gradual and also said the central bank was restrained in how much rates could rise, with a lower "neutral" rate, and qualified previous comments that weak first-quarter inflation was due to temporary effects, saying overnight that was only "partly" the cause.

The 10-year US Treasury yield increased one basis point to 2.35 per cent.

Six of the 11 major S&P 500 sectors were higher, with the technology index's 0.33 percent rise leading the advancers.

Japan's Topix index added 0.3 per cent. Australia's S&P/ASX 200 Index and South Korea's Kospi each advanced 0.4 per cent. Hang Seng futures were flat.

[W] e would push back again any "dovish" interpretation of the testimony associated with the fact that Yellen said, "Because the neutral rate is now quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy". Her statement focused on the usual issues, as she carefully outlined the need to keep rates rising at a sensible pace voiced her usual concerns for inflation.

But just days before these two days of sudden increases in US equities, Deutsche Bank Chief Economist Mikihiro Matsuoka warned about the growing signs of a frothy market.

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She repeated that the Fed also expected to start reducing its balance sheet "this year".

In what she acknowledged could be her last appearance before Congress Ms Yellen predicted that the United States economy would continue to grow over the next few years, allowing the central bank to continue raising interest rates.

In Europe, the CAC 40 in France was up 0.5 percent at 5,249 while Germany's DAX rose 0.1 percent to 12,632. Yellen noted in her testimony that the Fed plans to continue to gradually raise rates.

The New Zealand dollar rose after Federal Reserve chair Janet Yellen was seen as dovish and on some speculation that the New Zealand and Australian central banks may follow their Canadian counterpart and lift rates sooner rather than later.

It could be her last time as Fed chair if President Donald Trump decides not to reappoint her for a second four-year term when her term expires February 3, 2018. Pound/dollar was up 0.20% to last trade at 1.2961.

She said such a high growth rate would require accelerating productivity growth to two percent from the current 0.5 percent, a big jump since increases of only a few tenths of a point are considered significant.

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