Australian dollar outlook 14/12/2010
Australia: The AUD has risen over a cent during the offshore session, currently trading around USD0.9950, with a combination of factors affecting its leap back towards parity. While China did extend it’s reserve requirements of the banks for a further three months, the fact that their interest rates remained the same after the higher than expected inflation result over the weekend was seen as a positive by the market and saw investor risk appetite and the demand for the AUD increase. Comments overnight by the ratings agency Moody saw them warn the US that it will put it top level credit rating at risk with the new tax-cut deal reached last week between the White House and the Republicans; this caused investors to move out of the USD and into the AUD. Commodity prices were also stronger, another influencing factor when it comes to our local currency. While there isn’t any top tier data to be released today we will see the NAB business conditions survey for November which will be its first read since the unexpected interest rate increase last month.
Majors: Both the US and European equity markets were buoyed by the announcements overnight. The DOW gained 0.5% while in Europe the FTSE closed 0.8% higher at 5861; with the lack of action from China the main contributor to the positive session. Alike with the AUD, the EUR outperformed overnight gaining more than 1.2% against the USD as speculation grew that the European leaders could agree to take more action to reduce sovereign debt and Germany reaffirmed its support of the European Union and the common currency. While it has retreated slightly this morning the EUR/USD did trade above USD1.3400 for part of the session. The GBP also benefited from a weaker USD and could strengthen further with some CPI, retail and house price data due for release tonight.
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