The US Federal Reserve has ended its pledge to be "patient" in normalising monetary policy in what is a strong signal that it is nearing its first interest rate hike since 2006. However, the central bank also provided a more cautious outlook for US economic growth, suggesting that rates might not be increased as soon as what some people expect..
While the Fed Reserve reiterated that job market conditions had improved, it also acknowledged that inflation is running below its target level which can partially be attributed to crashing oil prices and the rampaging US dollar. The central bank downgraded its view of economic activity, stating that growth has "moderated somewhat" in recent months.
As such, although it abandoned the reference to being "patient" on a rate hike, the Fed Reserve's Chair Janet Yellen stated that: "Just because we removed the word 'patient' doesn't mean we're going to be impatient" (emphasis added). In addition, she said that a rate rise in April wasn't likely to occur, while she also slashed interest rate projections over the next few years.
While investors had been expecting a rate cut to occur in June, futures markets are now pointing to an October hike, according to the Fairfax press. As a result, the Australian dollar rallied to a two-week high against the greenback to US 78.42 cents.
Although the Australian dollar has risen, I expect the rebound will prove temporary with many analysts suggesting that it is still significantly overvalued. As such, investors could use this as an opportunity to stock up on companies such as CSL Limited (ASX: CSL), ResMed Inc. (CHESS) (ASX: RMD) and Westfield Corp Ltd (ASX: WFD), which will benefit when the dollar does eventually fall against the US greenback.
