Australian Dollar Outlook – December 3, 2014

A man walks past various currency signs, including the dollar (top R), Australian dollar (top L), pound sterling (centre L) and euro (bottom L), outside a brokerage in Tokyo October 28 2014. A year-long investigation into allegations of collusion and manipulation by global currency traders is set to come to a head on Wednesday, with Britain's financial regulator and six big banks expected to agree a settlement involving around ?1.5 billion ($2.38 billion) in fines. The settlement comes amid a revival of long-dormant volatility on the foreign exchanges, where a steady rise of U.S. dollar this year has depressed oil prices and the currencies of many commodity exporters such as Russia's rouble, Brazil's real and Nigeria's naira - setting the scene for more turbulence on world financial markets in 2015. Picture taken October 28, 2014. REUTERS/Yuya Shino (JAPAN - Tags: BUSINESS CRIME LAW POLITICS)

Bell FX Currency Outlook: The Australian Dollar has slipped back below USD 0.8500, being driven by a strengthening US Dollar, concerns over Australia's economy and uncertainty about the Reserve Bank's next move.

Australia: The AUD bounced after the Reserve Bank announced yesterday it would leave rates on hold at 2.5% and slightly ramped up its language around the level of the exchange rate. The RBA's post-meeting statement repeated the RBA's long-held view that there is likely to be a 'period of stability' in rates. The statement was very similar to the previous one although the RBA acknowledged the 'significant declines in key commodity prices in recent months'. In addition, the rhetoric on the exchange rate was strengthened, from the AUD "was offering less assistance than would normally be expected in achieving balanced growth in the economy" to "a lower exchange rate is likely to be needed to achieve balanced growth in the economy". It has been a whippy 24 hours for the AUD but downward pressure is apparent with USD strength and commodity prices under pressure. All eyes will be on the release of Australia's Q3 GDP at 11:30 AEDT which is expected to be solid, possibly a rise as high as 0.7% q/q and 2.7% y/y which would be regarded as a solid result given the headwinds the economy is currently facing. Most are now feeling growth looks set to come in below trend for most of the next year, clouded by the drag from the wind back in mining investment, a tentative non-mining recovery, a falling terms of trade and lower growth in public spending.

Majors: The USD strengthened as markets refocused on Monday's upbeat speech by New York Fed president Bill Dudley and comments overnight by Fed Vice Chair Stanley Fischer who signaled the FOMC is close to dropping "considerable time", that "zero rates is not normal" and that "the big issue we're discussing now is lift off of interest rates - when's it going to happen and how is it going to be done". Acknowledgment from Russia overnight that lower oil prices and sanctions are hurting with the Ministry of Economic Development now forecasting a recession in 2015 compared to a previous expectation of tepid growth. Crude oil gave up some of the previous day's gains amid on-going volatility as the market tries to find equilibrium following OPEC's decision not to cut production. Base and precious metals declined as lower oil prices continued to direct selling in metals markets prompted by deflationary concerns. Copper's recovery is also being hampered by weak economic data from China failing to alleviate concerns over waning global demand. Bulks prices remained weak, with iron ore prices hovering around USD70/tonne. Chinese, European, UK, and US service sector PMIs are key focus points for respective currencies.

ECONOMIC CALENDAR

03 DEC AU GDP SA QoQ / GDP YoY

EC GDP SA QoQ/YoY

EC Retail Sales

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