Australian Dollar Outlook 28/03/2011
The Australian Dollar traded to a post float high of 1.0294 offshore on Friday as equity markets remained firm.
Australia: With the financial world shrugging off the natural disasters of the last several weeks and ongoing tensions in the Middle East, the AUD rose almost 6 cents against the USD in making it the strongest performing currency last week.
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On Friday, US GDP data for the 4 quarter was revised upward to an annualised level of 3.1% from the earlier estimated 2.8%. This good news was countered by the largest fall in consumer sentiment in the last year as measured by Thomson Reuters/University of Michigan.
Much of this pessimism is related to the high energy prices, which has resulted in higher gasoline prices in the US as the summer travel season approaches.
Also lending support was the increasing talk by US Fed officials of ending the QE2 program earlier than anticipated as the US economy picks up.
With equity markets firmer again on Friday (Dow was up 0.4% to 12,221 with the S&P500 up 0.3% to 1,314) and oil near its 30 month high of US$105 a barrel and gold only slightly off to US$1429 an ounce, we see the AUD remaining firm although we would expect a minor retreat from its post high float.
Majors: With talk of the QE2 program ending in the near future the USD recovered some of its ground against the EUR.
The woes of Portugal did not help the EUR as S&P also downgraded the country's debt as 10- year yields increased to 7.8% and European officials debated the size and scope of the European Financial Stability Facility designed to provided a backstop for countries with debt worries.
We would expect to see the EUR weaken further in the near term. A rise in UK interest rates may be further away than the market expected a short time ago as the economy continues to falter.
This will likely improve the AUD cross rates in the near term.
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