Australian dollar outlook 25/1/2011
Australia: Stronger commodity prices and a positivenight on the offshore equity markets has seen the AUDrally over USD1cent overnight. With a quiet night datawise, the AUD has followed the lead from the US equitymarkets which posted solid gains after Intel announced itwould increase its share buy back plan by USD10bn. TheDOW was up 0.7% to 11951 and the Nasdaq up almost1% to 2713. Today sees the release of the fourth quarterCPI data in Australia; with many investors unsure as towhat the result will be.
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The influence that the recent floodshave had, and also the weaker PPI number released onMonday both pose some downside risk, although themarkets are still pricing in a 0.7% increase. Should thisresult come out as expected, or higher, it's possible thatwe will see the AUD rally further as the RBA will need tolook at hiking interest rates sooner rather than later.Before the announcement this morning, it's likely that theAUD will hold a fairly tight trading range.
Majors: Europe last night also had a positive night,buoyed by mostly positive data out of the region. Theirequity markets didn't rise as much as the US markets, butstill posted gains. This saw the EUR/USD hold solidlyabove USD1.3600. The Euro-zone's PMI data releasedwas positive with the index printing above expectationsmainly due to a sharp rise in the services component, anddespite a small decline in the manufacturing activity. Theindex rose to 56.3 up from 55.5. Some influential UK datais due out in the next couple of days. Tonight we will seethe GDP report for the fourth quarter, as well as the BOEmonetary policy mintues on Wednesday. With uncertaintybrewing before the announcements, the GBP/USD underperformed overnight despite the weaker USD, and iscurrently trading just below USD1.6000.