Australian dollar outlook 9/2/2011
Australia: The Australian Dollar was choppy last night following the decision by the People's Bank of China(PboC) to raise benchmark lending rates by 0.25% to6.06%, the second rate hike in six weeks and a clear signagain how authorities are moderating inflationary pressures. Inflation slowed to 4.6% in December but themarket is predicting a rise to 5.3% in January, the highestrate in two years. The deposit rate was also increased by0.25%, which now resides at 3%, which is almost 2%below the annual inflation rate.
There has been widespread talk regarding the property market and overheating pressures so the feeling is the authorities willcontinue to tighten monetary policy in 2011 and focus tocurb inflationary pressures and bring real interest ratesback into positive territory.
What was interesting was the market's response to what is generally regarded as sound policy by the PboC...growth / riskier assets such asequities, copper and the AUD were sold off then those movements were reversed pretty quickly.
Local data today includes consumer sentiment and focus will be on the Australian consumer's view on the outlook for their ownfinances as well as the perception of the outlook for theeconomy.
Key economic events this week includeAustralian January employment data on Thursday and testimony to a parliamentary committee by the Reserve Bank of Australian governor Glenn Stevens on Friday.
Markets: For the second night, it was a fairly uneventfulnight for the US Dollar.
EUR/USD pushed slightly higher with hawkish comments from the ECB's Mersch that inflation pressures have undoubtedly provided somesupport.
European equities rallied on positive companyresults.
The US Small Business Confidence survey increased in January to its highest reading since December 2007 when the chilly winds of "trouble ahead" started to bear their teeth.
It is very much hoped that continued improvement in the small business sector should help employment growth and the economic recovery in the US.
Fed Chairman Bernanke will testify infront of the House Budget Committee tonight and is likely to state, yet again, how inflation remains low and unemployment high, and that the Fed's current policy stance is still justified.
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