Bell FX Currency Outlook: The Australian Dollar continued its firm tone this morning on the expectation there will be more bank stimulus in the US, ECB & China.

Australia: The AUD moved towards 1.0500 after China's exports only increased 1% in July as compared to predictions of 8% yoy and their imports rose 4.7% vs. projections of 7% yoy and the trade balance in the month dipped to USD25.15bn which was USD10bn lower than forecast.

All three figures were well down on last year and analysts believe another cut of interest rates or the reserve ratios that must be held by Chinese banks is in the offing in the next several months.

This move downward in the AUD did not last long as most financial analysts are still expecting further stimulatory measures in Europe and the US to occur in the next several months.

All major equity indices in Europe and the US were basically flat or up only slightly (the Dow rose 0.3% with the S&P 500 up 0.2%). The RBA's quarterly Statement of Monetary Policy released on Friday raised growth forecasts for the remainder of 2012 slightly (Q4 is forecast to rise to 3.5% from the earlier forecast of 3%) with growth of 2.5% to 3.5% in 2013 still the target.

The RBA still sees Europe as the greatest risk to Australia and expects Chinese growth to be in the range of 7% to 8% over the next year. They commented the high AUD is a risk as "it is possible that the persistently high level of the exchange rate may cause a contraction of the economy in larger levels than historical relationships suggest".

Although the terms of trade and commodity prices are well off their highs, continued central bank buying of Australian government bonds and other debt securities suggest the AUD is regarded by some as a "safe haven" at the moment. Further reductions in interest rates are on hold for the moment unless the world economic situation deteriorates.

The RBA forecasts the unemployment rate will move slowly to a higher figure of 5.5% over the coming months.

Majors: The disappointing data from China hit the European market indices harder than the US although the declines were only modest with the Spanish Ibex 25 down by the most at 0.9% after some very strong gains in recent weeks.

The German DAX registered a small gain but most major European indices were slightly softer. The US S&P500 index was up for a fifth week in row and is up 10% from June 1. The base metals were all trading lower after the data from China although gold continued its slightly firmer tone of recent days finishing at US$1,622 per ounce.

Later this week we will see the minutes of the Bank of Japan's recent meeting (Tuesday) along with that of the Bank of England
(Wednesday).
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