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Aussie dollar falls as US quantitative easing ends

The Australian dollar dived by more than 2.5 cents, after US Federal Reserve chairman, Ben Bernanke said the Fed would begin to taper back bond purchases (quantitative easing or QE) later this year, and stop purchases by mid-2014.

The Australian dollar plunged below US93 cents, trading as low as 92.77 US cents. US share markets fell sharply with both the Dow Jones Industrial Average and the S&P 500 losing 1.4%, and the S&P / ASX 200 Index (Index:^AXJO) (ASX:XJO) looks set to follow their lead with SPI Futures down 55 points.

The US Federal Reserve is cutting back on quantitative easing, because the US economy is showing signs of growth. Unemployment in the US is expected to reach the target of 6.5%, with growth expected to come in between 3 and 3.5% in 2014.

Spot gold fell to a four-week low of US$1,344 an ounce, with silver, copper and aluminium also dropping. Gold looks set to fall further, as the US dollar strengthens, and could also see the Aussie dollar fall from here.

The good news is that Australian companies with offshore earnings like Cochlear Limited (ASX:COH), James Hardie (ASX:JHX) and Brambles Limited (ASX:BXB) are likely to benefit, both from the falling Aussie as well as a pickup in the US economy.

While the US markets fell, and the ASX will likely follow, the news is actually good news for the global economy. As the US grows, demand for products and services from other countries is likely to rise, which could see commodity prices rise and China’s economy grow at a faster rate than previously expected.

Foolish takeaway

While the market views the end of QE as a bad thing, it should be viewed in a positive light. It means the US economy is recovering and should see US companies reporting rising earnings and profits. That’s not necessarily a bad thing.

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Motley Fool writer/analyst Mike King owns shares in Cochlear.

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