Australian dollar outlook 11/01/2011

Australia: The AUD had a somewhat volatile night during the offshore session last night, especially compared to its recent tight trading ranges. Our local currency moved almost US1 cent, reaching a low around USD0.9885 and a high of USD0.9970. The AUD is now currently trading around the USD0.9950 level and is likely to remain there until the release of some local data later in the trading session.

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Late yesterday afternoon, we saw some genuine AUD weakness as China released some lacklustre trade data, and as continued concerns over the impact the Queensland floods will have on the growth in our economy we saw investors move towards more ‘safer’ investments. This didn’t last too long though as the AUD rallied on stronger commodity prices. Today we will see the release locally of some influential data, including the trade data for November and the ANZ Job Advertisements for December. The markets are expecting a slightly weaker number for the trade surplus, but for it to hold above A$2bn for the first time. The jobs data due out today will also give the market a good indication as to the labour market ahead of Thursday’s official December employment data. With the AUD under some strong downward pressure at the moment, it would need an impressive jobs result or a boost in the trade data to see the AUD move above the parity level once again.

Majors: Most of the news overnight continues to come out of Europe as the sovereign debt problems comes back to the forefront of news. Markets have speculated that the ECB has bought up some of Portugal’s bonds to help them escape some of their financial problems, but officials have denied such involvement. This has fueled fears that Portugal is heading for the same fate as Greece and Ireland, with concerns also over the stability in Spain. ECB President Trichet has also highlighted inflation as a possible problem for the region. These concerns saw the EUR/USD fall below USD1.2900 for most of the overnight session. US equities were also weaker overnight mainly due to the concerns out of Europe. The DOW was down 0.3% while the S&P 500 and the Nasdaq were also down 0.1% and 0.2% respectively. This is ahead of the fourth quarter earnings reporting season which will see Alcoa post the first of the results tonight.