A rather quiet start to the last trading day of what has been a tumultuous week as traders appear content to welcome the weekend. Australia's new home loans data rose by +1.8% which was lower than estimates of +2.5%, but higher than last month's revised figure of +1.2%. The Aussie did not have much of a reaction to this.
The market is still trying to decipher the hidden meaning, if any, in Bernanke's comments yesterday. There have been a lot of theories posited as to why he would contradict the statements he made after the last FOMC meeting. The main thrust of yesterday's statements was to perhaps inject a note of caution to those that were expecting the tapering process to be a fait accompli with the FED shifting to a tightening policy soon after.
In attempting to do so, he appeared to be sending a rather stern message to the bond market, which had been aggressively pushing yields higher, that their actions were counterproductive to the stimulative policies undertaken by the FED to try and resuscitate economic growth.
Higher yields usually act as a deterrent to economic growth and rate hikes are a monetary policy tool in the quiver of a central banker when they want to curb inflationary pressures. Currently, this is not a worry for the US economy and Bernanke was probably trying to get that message across by urging the bond market to not get too far ahead of itself.
Ultimately, if economic growth continues its recent uptrend then the FED will taper and, at some point in the future, will probably have to consider raising rates but, according to the FED chairman, the US economy is currently not at that stage.