Australian Dollar Outlook 7/22/2011
Australia: The package is worth EUR109bn with EUR37bn and is to be contributed by private sector bondholders in debt swaps or rollovers. The markets responded positively to this news and this resulted in the USD coming under broad-based selling pressure as the sharp improvement in risk appetite established. This followed yesterday's slight fall in the AUD after the release of Chinese manufacturing PMI fell to 48.9 in July from 50.1 in June.
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Anything below 50.0 is considered big news. Oil rose on European debt optimism with WTI futures 1.1% higher while gold retreated from recent record highs. Base metals were mixed as were soft commodities. Better crop conditions in Russia and a fall in US wheat exports saw wheat prices fall. Cotton continued to fall as Chinese imports showed weakening demand. In Australia, media reports are suggesting that weak Q2 production results from major coalminers cast doubt over the ability of coal production and exports to fully rebound through 2011, highlighting significant downside risk to the RBA's growth expectations.
Today international trade price indices are released here.
Majors: The USD was sold strongly on the news from Europe and what will be very interesting will be the emerging optimism that a deal will be done soon on raising the US debt ceiling, with reports that the respective parties are discussing a package that would include about US$3.7tn in deficit cuts over 10 years without raising significant tax revenue. The Philadelphia Fed Survey rose to 3.2 in July from -7.7 in June while US jobless claims rose 10k last week to 418k.
Finishing with the Eurozone, Manufacturing PMI fell to 50.4 in July from 52.0 in June, which was weaker than expected and this drove an early sell off in the EUR/USD. Euro Group leader Jean-Claude Juncker stated 'selective default' for Greece is a possibility, however, markets rapidly turned around as headlines of the final Greek deal emanated and EUR/USD rallied a whopping 250 points. Tonight the German IFO Survey is due, while there is no key economic data in the US.
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