Oh what a night. The irresistible Australian Dollar has broken more records and surged through USD 1.0700 overnight.

Australia: What happened this time? The US Dollar is the villain here, and it is under extreme pressure with the Federal Reserve’s accommodative / expansionary policy undermining the reserve currency. The market’s view on the policy is well established, and there appears little in the wind (read probably nothing) to alter the likelihood the USD will stay under the pump. It does seem that dips in the AUD will be well supported, not withstanding periods straight after a rally like this will see some correction.

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Risk appetite was strong with these developments, with stocks and commodities posting more gains and strong earnings results being announced in Europe and the US. Gold touched US$1,500 per oz, and oil sits at US$111 per barrel. So. It’s hard to see the AUD turning south in a hurry but that said, a significant amount of the AUD’s upside is potentially already priced into the unit.

The medium term target in 2011 is most likely USD 1.1000 but there are many that think in 12 months time the AUD will be back below parity and we agree on that. For now though, only the really brave would predict against the AUD’s strength. PPI data for Q1 is released today, which will provide further guidance on the make up of Q1 CPI forecasts. The rise in imported products will be offset by the higher AUD and often, the data does not translate that well to the CPI.

Majors: US stocks soared last night, fuelled by earnings reports that beat Wall Street expectations and positive news on the ailing housing market.

The Dow Jones ended 188pts (1.53%) higher at 12,454 in closing trade and the Nasdaq Composite leapt 57pts (2.09%) to 2,802 as solid earnings from blue chip companies Intel, IBM and United Technologies, and from Internet giant Yahoo! helped ignite buying in the Easter holiday-shortened week.

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The S&P 500 Index, the broader measure of the markets, advanced 17.7pts (1.35%) to 1,330. US existing home sales rose 3.7%, far better than the 2.5% forecast. In Europe, speculation on Greece needing to restructure its debt continued whilst in Spain, a solid auction of Spanish debt helped support the EUR. News in the UK was nit as bullish as elsewhere, with the market pricing for the first rate hike in
November now, confirming that the UK economy still has a very long way to go in many areas.

From all of us at Bell FX we wish you a safe and happy Easter with your familyand friends and our next Daily FX Report will be with you next Wednesday.

Economic Calendar
AU PPI Q1
UK Retail Sales Mar
US Initial Jobless Claims 16 Apr
US Philadelphia Fed Index Apr

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