Australian Dollar Outlook - 11/08/2011
Bell FX Currency Outlook:
The AUD has traded in a wide range in the last 24 hours as it continues to take direction, like just about all financial markets, from developments in Europe.
Political uncertainty in Italy led to volatile movements in the markets with early reports that Italian Prime Minister Berlusconi had resigned, reports he subsequently denied. Make no mistake though, he is under real pressure now and the next few days will be critical with his first test being tonight where he faces the challenge to get the 2010 (not 2011) budget approved.
Further fiscal austerity measures will be voted on next week but look at those Italian bond rates with the 10 year now a massive 30 bp's higher at 6.632%, the highest they have been since way back in 1997. Debt to GDP ratio is a whopping 120%, so Italy is a real focus now that Greece has been settled down.
The ESFS is not large enough to cope with Italy, so European leaders have a lot to do. Locally, the Australian Senate will today pass the carbon tax which begins from July 2012 targeting the 500 largest polluters and this tax will be another source of pressure for the Budget given it has not been included in the 2011-12 Budget forecasts.
The NAB Business Survey is released today and expectations are that it will be difficult to build on last month's improvement given a lot of that was centred at manufacturer's enjoying the sub parity AUD. We see AUD holding its ground for now, unless there's bad news out of Europe.
EUR/USD stayed fairly steady around 1.3750 despite relatively poor data out of Germany and the Eurozone and of course, the surge in Italian Bond Yields. France announced tax hikes and budget cuts of EUR65bn over 5 years in a bid to maintain its AAA rating. US equities were fairly unchanged after a volatile session and European equities ended slightly lower weighed down completely by Italy's sovereign debt problems.
Offshore tonight, key data is NFIB small business survey in the US and Industrial Production in the UK, and there are a host of Fed and ECB speakers out tonight.
Economic Calendar
08 NOV AUST Trade Balance
Aust NAB Business conditions/confidence
US NFIS Small Business Optimism