Australian Dollar Outlook - 03/14/2012
Bell FX Currency Outlook: The Australian Dollar is slightly weaker following the release of better than expected American retail sales, a positive announcement from JP Morgan and comments from the US Federal Reserve about the US economy.
Australia: The good news commenced with good growth in US retail sales, which rose 1.1% in February. The news flow gained momentum shortly afterwards when JP Morgan announced an increase in the dividend and share buyback.
This led to JP Morgan shares rising a whopping 7.2%, amongst a rise in bank shares of 5.2%, and in the backdrop of the Federal Reserve's stress tests on US banks revealing "the majority of the largest US Banks would continue to meet supervisory expectations for capital adequacy".
The final piece in the jigsaw came with the FOMC delivering an upbeat assessment of the US economy. Now where this gets particularly interesting for the AUD is that the equities rose with these announcements and sentiment improved. There was appetite for the Greenback, as opposed to an increase in commodity currencies.
Now this may or may not be a turning point in the fortunes of the AUD, but it has been a significantly long time since good news was greeted with demand for the USD.
Looking at local conditions today, the Westpac Consumer Confidence Index is released at 10.30am AEDT with expectations there will be some signs of improved sentiment in February. Dwelling commencements for Q4 are also released with a modest decline expected.
We see the AUD range trading in the 1.0500's today with possible further downside testing to come.
Majors: Last night was the tale of two cities, with Europe's news being centred on austerity and the US looking more positive. In Europe, the Spanish Government and Euro-zone Finance Ministers agreed to cuts of 0.5% of GDP from the 2012 budget. The Spanish Government are forecasting a 1.7% contraction in GDP for 2012, which poses difficulties for austerity measures, and highlights the difficult conditions that remain.
In the US, the economic data and announcement from JP Morgan were very well received. Looking at monetary policy settings, the Fed maintained that rates will remain on hold "at least through late 2014", with operation "twist" to continue.
The strength in the USD was the "new news", and the market will focus on whether this is the exception or the rule, as we move further along into 2012.
Economic Calendar
14 MAR AUS Westpac Consumer Confidence Index Mar
EU Euro zone CPI Feb
US Fed's Bernanke Speech