Australian dollar outlook 12/01/2011

Australia: The AUD has opened slightly higher this morning after a fairly uneventful offshore session overnight. Data out of the US was mixed, and the offshore equity markets were flat, which can explain the quiet trading conditions.

Yesterday saw further weakness in our local currency, with the AUD dropping to a one-month low against the USD as the devastation and full impact of the floods in Queensland began to sink in with investors.

[Get this delivered to your inbox for FREE. Subscribe to our daily Markets Newsletter.]

The impact that it will have not only on the families and businesses that are currently in the flood region, but also the affect it will have on the nations Q1 GDP result with the large majority of the Queensland’s agricultural region under water, is weighing on the market. Our thoughts are with everyone who is currently in Queensland fighting the crisis. Today sees the release of the housing finance data for November with the expectations of a weak result due to the interest rake hikes in November, as well as the deterioration in affordability. Despite this data, we are expecting a fairly quiet day on the currency front as we wait for the release of our employment data tomorrow.

Majors: As mentioned above, data out of the US was mixed overnight. Unexpected falls in both wholesale inventories as well as small business optimism surprised the market, while indicators continue to show improvement in the employment sector. While data continues to show the improvement in the US labour market, the unemployment rate isn’t expected to drop below 8% until 2012. Concerns over the sovereign debt problems in Europe eased slightly overnight as the Japanese Government was considering using some of it’s EUR reserves to purchase bonds due to be issued later this month. This has seen the EUR/USD strengthen slightly overnight, and is currently trading just below USD1.3000.