Australian dollar outlook 10/01/2011

Australia: The Australian dollar opens up little changed form Friday’s level in the low 0.9900’s after the release of US employment data on Friday night which generally disappointed the market. Non-farm payrolls only rose 103k in December, which was lower than the market forecast of 178k.

The unemployment rate fell however from 9.7% to 9.4% due to higher employment growth but also a lower participation rate. Somewhat more positive was the revision upward of job numbers for October and November. This news did the not help the share markets after a lower result from Europe saw all major indices down as concerns again emerged on the plight of Portugal, Spain and Italy who are all planning government bond auctions this week. A court ruling in Massachusetts that US Bancorp and Wells Fargo made false property foreclosures added to the general negative tone.

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In Australia we have thus far seen no real effect on the AUD due to the severe flooding throughout much of the country although the situation in Europe may spill over into another bout of risk aversion at some point in time. Rumours of a new property tax in China in the major cities may dampen enthusiasm for the AUD as well. Today retail sales for November are to be released with expectations of a 0.4% rise along with jobs ads for December. On Thursday the employment data for December will be released with a small increase of 25k in jobs expected.

Majors: The EUR weakened against the USD as more sovereign debit concerns emerged as the cost of credit insurance for Portugal and Belgium rose again. Yields continue to blow out with Portugal having to pay 160 bps more than they did only 3 months ago. There is a growing feeling that Portugal will be next to seek a bailout in the vicinity of EUR50 to 100bn. AUD cross rates continue to be firm although AUDGBP has weakened off slightly as the GBP has gained against the weaker USD.