Australian Dollar Outlook 11/29/2011

The AUD has rallied back towards parity as better than expected retail sales data in the US and encouraging news out of Europe about the potential bailout plan, gave the market some confidence.

Australia: While the AUD hit a high overnight of USD0.9975, it has since retreated to be currently trading just below USD0.9900. With the return of confidence to the market equity markets across the board have posted large gains. In the US, the better than expected Thanksgiving retail sales boosted their markets with the DOW closing higher 2.1%, the S&P500 up 2.4% and the Nasdaq up almost 3%. European markets were also stronger as further talks about their rescue package, and possible new initiatives showed that they continue to work towards an appropriate solution to help the ailing region. Germany's DAX finished the session 4.6% higher while the Euro Stoxx 50 climbed 5.2%. While these gains are welcomed after 11 straight days of losses, we have seen this before; and until a solution is firmly agreed upon, there will be a large amount of caution still taken by investors. In Australia today the Labour Government will release its mid-year budget update, which is expected to contain some significant spending cuts over the next four years in an attempt to offset the downward revisions in expected economic growth. Despite these revisions down, the government remains determined to return the budget to surplus in 2012 - 2013, which explains the large cuts.

Majors: Tonight see's the Euro-zone finance ministers come together for their final meeting of the year, with investors looking for credible solutions to be worked through. Fiscal integration is one of the plans which is being considered, bringing Germany and France into the Euro-zone and will hopefully see the "creation of a Stability Union". All of this managed to overshadow the OECD's latest economic forecasts which didn't paint an inspiring picture. Some of the recommendations included the ECB to lower policy rates to allow for further liquidity in the region, for the Federal Reserve to leave rates unchanged for another 2 years at least and for the Bank of England to extend its asset purchase target.

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