Australian Dollar. The AUD has weakened this morning as continued unrest in the Middle East reduced the appetite for riskier currencies such as the AUD and saw demand for the USD increase. Due to the US public holiday for President’s Day their markets were closed overnight, which saw the AUD track the European equity markets early on in the offshore session.

We saw a large jump in commodity prices overnight in both oil and gold. Libya is one of the main areas of concern in the Middle East as protestors have overrun several of their major cities. Since Libya is a major world oil producer (currently accounting for 2% of the worlds supply) concerns are now heightened over the world oil supply and as a result has seen the price of the commodity increase considerably.

Safe haven flows away from riskier assets also saw the demand for gold increase with the price jumping higher; currently above USD1400 per ounce; a seven week high. With no local data to be released today, we should have a fairly quiet day on the currency front as the AUD tracks our equity market. Equities are also expected to be fairly flat until the US markets open tonight.

Majors. With a US public holiday last night, we look to the European markets. The European equities fell sharply over the concerns in the Middle East with Germany’s Dax falling 1.4% and the FTSE 100 closing 1.1% lower. Despite the fall in equity markets, the EUR/USD was largely range bound as a result of thin markets, although some positive German data did lift the currency pair slightly. The IFO Business Climate Index which measures sentiment in the Euro-zones biggest economy, Germany, rose to 111.2 in February; it’s highest level since 1969. Also supporting this result, the purchasing manager’s index for Germany’s private sector also proved strong, hitting a record high in February.

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