Australian Dollar Outlook - 5-3-13

Bell FX Currency Outlook: The Australian dollar has edged slightly higher overnight following the European Central Bank's decision to cut its key interest rate and the release of better US economic data.

Australia: The AUD is trading at USD1.0250 this morning after a volatile overnight trading session for all currencies. The ECB's decision to cut its refinancing rate 0.25% to a new record low of 0.50%, in an effort to stimulate the Euro Zone economy, was pretty much expected, but it was the prospect of further action that had the bigger impact on markets. President Draghi said the ECB would consider charging banks interest to deposit excess overnight cash with the ECB (currently the deposit rate is zero), and that a further cut in the main refinancing rate was possible. His comments again highlighted that the risks surrounding the Eurozone economic outlook continue to be to the downside. The AUD slipped a little lower yesterday after the 5.5% fall in building approvals saw the markets price in a 55% chance of an RBA rate cut next week. Many favour a cut in June, but a very weak retail sales release on Monday could sway the RBA to cut on Tuesday. With the AUD/USD sitting near USD1.0250, crucial support is now at USD1.0170. This has marked the bottom of the currency's trading range on many occasions over the past year. Today in Australia, the Q1 PPI is released, but is unlikely to move markets as we have already had the CPI data. Also this morning, the Services PMI is released. We believe the AUD is likely to trade in a narrow range during today's local session as markets await the release of key US employment figures tonight.

Majors: Comments by President Draghi led to the EUR falling from over 1.3200 to 1.3065, while the USD index was the key beneficiary, climbing from around 81.60 to trade above 82.20 currently. Demand for the USD was also strong relative to the JPY. The USD/JPY rose from 97.20 to as high as 98.40. The prospect of further ECB action saw European equity markets recover some ground after Draghi's comments, while US markets also got a boost from the solid jobless claims data, which fell to 324K last week from 342K, now at their lowest level since 2008. The jobless claims data provide some confidence that tonight's payrolls forecast of 140K will be hit, after the disappointment of the weaker ADP employment data on Wednesday. The unemployment rate is expected to remain steady at 7.6%. The Indian central bank meets today and is expected to cut the Repo rate by 0.25%. Other announcements today are PMIs in China, India, the UK and the US.

ECONOMIC CALENDAR

03 MAY CH Non-manufacturing PMI Apr

UK PMI Services Apr

US Unemployment Apr

US Change in Nonfarm Payrolls Apr

[Kick off your trading day with our newsletter]