Australian dollar outlook 05/01/2011

Australia: The AUD has opened lower this morning, retreating from its recent highs it struck over the New Year’s break. Sharp falls in commodity prices overnight sent the AUD crashing back down towards USD1.0000, while positive data in the US also weighed on the AUD. Concerns about the Queensland floods having a negative impact on exports also didn’t help the AUD which started to drift lower throughout yesterday’s local session. There also appears to be some unwinding of AUD crosses, particularly the AUD/EUR and AUD/GBP which have both opened lower this morning. Gold fell over 2%, its biggest one-day fall since November, while the benchmark oil price for February lost about 3%. There is no major data being released in Australia today so we expect the AUD to trade around the USD1.0000 level.

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Majors: The USD rallied broadly against most other major currencies overnight following fresh indications the pace of the US economic growth is accelerating. US Factory orders rose unexpectedly in November and the Federal Reserve acknowledged that the economic rebound seen in data in recent weeks is likely to continue. As mentioned above, a sharp pullback in commodity prices also helped the USD advance particularly against the commodity linked currencies. The GBP was one of few currencies to make gains against the USD overnight following a report that showed UK manufacturing expanded in December at the fastest rate in more than 16- years. As traders return from the Christmas holiday period, expect trading to remain choppy as trading volumes slowly return to normal. The market will focus its attention to the year’s first key data release, Friday’s monthly report on US employment.