Australian Dollar Outlook – 12-21-12

Australia: The overnight market focus was all on the US, and its unresolved talks to avert the so-called fiscal cliff which is doing a good job influencing the market at the moment. This has kept risk appetite low and seen to a slight weakening in the AUD. United States leaders are working to reach a resolution to avert the fiscal cliff - a series of tax hikes and spending cuts due to begin in 2013. House Speaker Boehner commented he would continue to work with President Obama on the 'fiscal cliff'. US Treasuries sold off marginally at the long end of the curve, although core European bonds rallied slightly. Oil ground higher, while base metals and precious metals were weaker. Locally, Treasurer Wayne Swan announced Australia will not achieve a Budget surplus in 2012-13 after all the hype. Rough calculations are suggesting a deficit of ~ A$6bn for the full year. This might mean the Reserve Bank of Australia will not need to cut rates as far as they might have otherwise. A lack of local economic data, plus low volumes in the market, will most likely mean the AUD is unlikely to move much today

Majors: In currency markets, the US Dollar was steady. In addition to the 'fiscal cliff' scenario, better than expected US data, in particular December's Philly Fed survey provided a layer of support for risk appetite yet intriguingly, most major currencies were unable to post new highs against the USD. US Treasuries were little changed overnight and US equities strengthened. Oil prices rose in choppy trade buoyed by the favourable US data but the continuing standoff in US budget negotiations limited gains. Spot gold fell overnight prompted by a government report showing the US economy grew at a faster-than-expected pace in the third quarter. Base metals prices were generally softer overnight with copper lower by 1.9% as the continuing deadlock in the US fiscal negotiations outweighed positive US growth data. Bank of Japan announced more quantitative easing at its meeting yesterday, boosting its asset purchasing fund to JPY 76 tn. Good luck today.

Economic Calendar

21 DEC CH Dec MNI Flash Business Sentiment Indicator

UK GDP QoQ/YoY

US Nov Durable Goods

US Nov Personal Income/Spending

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