Australian Dollar Outlook - 11/04/2011

The Australian dollar has rallied overnight following positive moves in offshore markets.

The Aussie pushed back above 1.0400 against the Greenback overnight as a surprise cut in interest rates by the ECB and cancellation of the Greek referendum boosted risk appetite. Markets rallied across the board as headlines relating to Greece and the ECB dominated generating a choppy trading session. Yesterday locally saw the release of the

Australian Retail sales data for September which came in as expected up 0.4%. Domestically the RBA will release today at 11:30am its quarterly statement on Monetary Policy. Given the 25bp cut to interest rates earlier in the week, markets will look to the statement for clarification on the stance of the current policy and the extent to which the RBA will revise down its growth and inflation forecasts.

Equity markets rallied in Europe and the US overnight with the S&P 500 up 1.9%, the Dow up 200 points to 12,044 while the Dax ended the session 2.8% higher. The Greek Prime Minister Papandreou initially shocked markets with his referendum idea on the bailout / Euro membership earlier in the week, he has overnight apparently ditched this idea. Floating this idea he said created a "creative shock" that could lead to a coalition deal with the opposition conservative party, saying that talks are already underway. The confidence vote in the Government should proceed tonight. New ECB president Mario Draghi surprised markets in his first capacity as ECB president by cutting European interest rates by 25bps. In his press conference following the announcement, Draghi reasoned the surprise cut around a sharp forecasted decline in inflation below 2% for 2012, noting intensified negative risks to the euro economy with some of these risks already materialising. The ECB is now forecasting a mild recession for the euro area from Q4 2011. Meanwhile in the US saw the release of the weekly jobless claims beat market expectations, falling slightly to 397k from 406k. Given the recent sharp declines in business confidence this is the first number below 400k since September 2010. The employment index also saw a positive figure bouncing to 53.3 after the unexpected drop to 48.7 last month.

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