Australian Dollar Outlook 22/10/2010
Australia: The AUD rallied yesterday before retreating again overnight to below USD 0.9800. It was a mixed night
with European equities performing well while US equities also rose amongst pretty good US economic data.
Confusingly though, in this backdrop of strong equities, there was a rise in the USD and a fall in commodities. There are nerves ahead of the G20 Finance Minister's meeting starting today with talks very much looking to exchange rate policies. US Treasury Secretary Geithner's proposal to keep "external imbalances to levels that are more sustainable" has gained little traction and he further stated he considers the major currencies to be "roughly in alignment now".
The debate around developed nations / economies v's emerging markets. These words are essentially the same message. The US is highlighting, yet again, China's unwillingness to let the Yuan rise and this is leading to huge world trade imbalances. "In the other corner", are emerging markets who are concerned with the US's ongoing expansionary monetary policy.
The AUD is poised and it's as difficult as ever to know what next. Uncertainty and potential massive volatility remain. Today sees local release of import and export prices and the G20 meeting this weekend, starting tonight, in South Korea.
Majors: China released their Q3 and September data yesterday, which were within market expectations. China's annual GDP growth slowed to 9.6%, which is demonstrating their economy is returning to more sustainable levels of growth.
CPI Rose to 3.6%, the highest level in 23 months, with surging commodity prices and strong domestic demand likely to place further upward pressure on prices. Risks of asset bubbles are emerging, and inflation is at a level that more than negates this week's interest rate rise by PBOC.
Mixed base metals are interesting, and all this uncertainty led to a whippy EUR/USD in a range of nearly 2 big figures. There was more talk out of the US on QEII, with the outspoken St Louis Fed President Bullard noting the Fed was to go ahead with QEII, he was in favour of incremental purchases in "units of about US$100bio". "Loose" as thought by other major nations, or appropriate??
Newsletter: Subscribe to receive this report daily