Australian dollar outlook 07/01/2011

Australia: The Australian dollar continued to drift lower overnight as investors remained sidelined ahead of US employment numbers being released tonight. A stronger USD and a sell-off of the EUR weighed on the AUD, as we saw it gradually trade to a low of USD0.9933 overnight. The Queensland flood situation continued to place pressure on the AUD after Prime Minister Julia Gillard warned that this flood disaster will hit the national economy and spending cuts may be needed to return the federal budget to surplus on time. The AUD is expected to trade between USD0.9900 and USD0.9990 on the day as currency market’s struggle for direction ahead of US Nonfarm payrolls tonight.

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Majors: The EUR tumbled to its weakest level in more than a month against the USD as investor’s optimism about the US economic recovery continues to strengthen the greenback. Wednesday’s surprise jump in US privatepayrolls data has set the backdrop for tonight’s payrolls data which is widely expected to show an improvement in the US labor market. Recent data out of the US has reflected an increasingly vigorous economic expansion however sustain job creation has largely failed to materialize. Investors are hoping to see a turnaround in the numbers as estimates point to a gain of 175k jobs. An improvement in the jobs numbers is going to see the USD strengthen further as it may mean a change to the policy cycle the Federal Reserve currently have in place. US equities were weaker towards the close as blizzard affected retails sales numbers disappointed the market. Oil fell to its lowest level in 2 weeks while gold also weakened on the back of the USD’s strength.