Australian dollar outlook 13/01/2011

Australia: The Australian dollar has rallied strongly overnight, pushing back above USD0.9900. Concerns over the impact on the Australian economy of the floods in Queensland have begun to dissipate and once again international events have become the main focus for the markets. It was clearly a case of “risk on” again overnight as equity markets and commodity prices climbed.

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The USD was sold off, and as a result, most other currencies, including the AUD, were higher. The release of December labour force data is due at 11.30 AEDT today. The market will be watching the figure closely as another strong result is expected. Forecasters are predicting employment growth of around 25k for December, with the unemployment rate likely to fall to 5.1%.

Majors: Financial markets were very encouraged by a successful Portuguese bond sale, which took place overnight. The Portuguese 10 year government bond auction of EUR1.25bn drew some solid support, including from the Chinese and Japanese, and helped allay fears that Portugal may be the next European country to request a financial bailout. Adding to the positive tone in Europe was news that the German economy recorded a surprisingly strong annual growth rate of 3.6% in Q4 of 2010. European equity markets surged higher, with the Euro Stoxx 50 recording a 3.0% increase. Stocks in Spain and Greece recorded gains of nearly 5.0%. The EUR climbed 1.3% against the USD to record its biggest intraday gain since Dec 13, 2010. Commodities were also stronger across the board, with Nickel rising 4.5%, Zinc up by 3.1% and lead up 2.5%. Crude oil was also higher, climbing to close to USD92.00 per barrel.