The commodities-linked Australian dollar on Thursday slumped below parity with the greenback for only the third time since October due to disappointment at the US Fed's new plan to support its economy.The "Aussie" sank under US$1.00 in early afternoon trade and continued trending lower, hitting 99.84 US cents late in the session.Since breaching parity in October last year the Aussie has rallied consistently near or above the US$1.00 mark. It hit a record of US$1.1081 in July.
It retreated briefly in the immediate aftermath of Japan's quake and nuclear crisis before again dropping below US$1.00 on August 9 following Standard & Poor's downgrade of the United States.The latest drop-off in sentiment for the the risk-based currency came after the Federal Open Market Committee announced plans to shift $400 billion in its shorter-term debt portfolio holdings to longer-term bonds.
The bid to lower long-term interest rates and stimulate the economy was not received well by the markets and was accompanied by a grim picture of the US economy from the Fed.
GFT director of global research Kathy Lien said currencies and equities were sold off after the announcement with investors disappointed by the Fed's "feeble attempt to revive the US economy"."They could have combined (this) with a reduction in the interest rate on reserves or announce a new asset purchase programme, but they opted for the cheapest and weakest option, next to doing nothing," she said.
"By buying and selling the exact same amount of Treasuries, the balance sheet remains unchanged, which means no additional money was pumped into the US economy."