Australian Dollar Outlook 12/8/2011

The Australian dollar received a boost yesterday, upon the release of a stronger than expected 3rd quarter GDP result.

Australia: The release from the Australian Bureau of Statistics showed that the Australian economy grew by 1.0% in the three months ending September 30. Markets had been predicting a result closer to 0.8%, and as a result, the AUD pushed higher towards the USD1.0300 level. Such a strong result may impact people's expectations for further aggressive interest rate cuts from the RBA next year, although the events currently playing out in Europe will continue to be the main focus for the markets in the short term. Australian employment figures due for release at 11.30 AEDT this morning are not expected to have too much of an effect on the AUD unless the figure varies dramatically from the expected result of an increase in the number of employed by 10,000. Expect the AUD to trade either side of USD1.0300 during today's session.

Majors: A quiet trading session for the offshore markets last night as we head into tonight's ECB monetary policy decision and Friday night's EU summit. It is widely expected that the ECB will deliver at least a 25bp cut in official interest rates, with some calling for a more aggressive 50bp cut. Attention will also be firmly focused on ECB President Mario Draghi at his press conference, which will follow shortly after the rate announcement. A lot of rumours are emerging out of Europe ahead of this weekend's EU summit and markets remain wary of the possible outcomes with most seeming reluctant to hold any large positions heading into the weekend.

There had been reports that European officials were in talks to combine the existing 440 billion euro European Financial Stability Facility with a new 500 billion euro European Stability Mechanism. But a German government official, speaking anonymously with reporters, said that the German government opposed such a proposal. Expect further volatility over the coming days as further news emerges out of Europe.

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