Australian Dollar Outlook –3/5/2013

Bell FX Currency Outlook: Australian dollar makes a tepid recovery ahead of the RBA board meeting this afternoon.

Australia: The Australian Dollar has pared back its local session losses following gains in US equity markets overnight. The AUD dropped to an eight month low in yesterday's session following sharp falls in local share markets led by concerns over a slowdown in Chinese economic growth. Positive comments from FOMC member Yellen buoyed markets and saw the local unit rising in sync with equity markets. The Chinese equity market suffered heavy losses in yesterday's session as the central government unveiled a new round of property tightening policies with measures to tighten up on house purchase limits and cool property prices in cities with "excessively fast" price gains. The Shanghai stock market fell 3.6% and closer to the Australian commodity space losses were seen in steel and iron ore prices sending the AUDUSD to the low 1.01s. Domestically today Retails Sales figures are due at 11:30am. After some improvement in January analysts are tipping for a slight rise today. Direction for the AUD today will come from the RBA Board decision due at 2:30pm. With expectations for no change in official interest rates, direction will stem from the tone of the accompanying statement.

Despite the move higher overnight, downside risk still remains for the AUDUSD with a quick foothold back above 1.0200 not expected for the currency pair in the short-term. Safe haven demand for the US dollar with uncertainties over the Italian political situation and Chinese monetary policy will need to be resolved for the currency to be able to move higher.

Majors: US equity markets shrugged off concerns over the Chinese economy as US Fed Vice Chairman Yellen suggested the Fed intended to push ahead with its plan to purchase US$85 billion in monthly bond buying. The S&P 500 closed 0.3% higher at 1,523 while the DJIA ended 0.2% higher at 14,120. European equities recovered some ground, although still ending the session lower as political uncertainty in Italy continues. The German DAX fell 0.2% to 7,692 while the FTSE closed 0.5% lower at 6,346. Lower oil prices supported rises in industrial and commodity stocks overnight. WTI futures fell 0.3% to USD 90.1 while Brent fell 0.1% to USD 110.1 per barrel. A strong US doll saw gold prices closing 0.4% lower at USD 1,569.9 an ounce. Tonight markets will focus on US manufacturing data along with Eurozone Retail Sales and PMI reads.

Economic Calendar

05 MAR AU Jan Retail Sales

AU RBA Policy Announcement

CH Feb HSBC Services PMI

EU Jan Retail Sales

UK Feb PMI Services

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