Australian Dollar Outlook – December 5, 2014

Australian one dollar coins surround a U.S. one dollar note in this photo illustration taken in Sydney July 27, 2011. Australian consumer prices rose by more than expected last quarter while underlying inflation proved alarmingly high, reviving pressure for an increase in interest rates and lifting the local dollar to a 29-year peak. REUTERS/Tim Wimborne (AUSTRALIA - Tags: BUSINESS)

Bell FX Currency Outlook: The Australian Dollar made new four year lows last night amid expectations of interest rate cuts early next year.

Australia: Yesterday morning the AUD had a brief spike after some decent economic data was released, however gains were soon given back as the AUD made lows not seen since July 2010. Retail sales data showed an increase of 0.4% on the month, beating economists' expectations of 0.1%, while the trade balance showed a smaller deficit than expected at -$1.323 billion (-$1.9 billion expected). Looking into the trade balance composition shows this was driven by both a rise in exports and a fall in imports; expects were up from 1% to 2% on the month, while imports fell 2% having grown 6% the previous month. The AUD rallied from just below 0.8400 to 0.8429 as the data came out, but by midafternoon was making new lows. The currency then came under further pressure late in the session as Westpac chief economist Bill Evans issued the surprise call for the RBA to cut rates in early 2015 (just days after Deutsche Bank and Goldman Sachs made similar calls). He stated that the Reserve Bank would need to cut the cash rate by 0.5 percentage points in the next few months after Christmas to try to bolster domestic demand and pull the Australian dollar lower. This caused the aussie to fall into the 0.8350s. There are no significant data releases in Australia today (only AiG performance of construction index) and markets are expected to remain watchful with the all-important US employment numbers out tonight.

Majors: Central Banks took centre stage overnight as the Bank of England (BOE) and European Central Bank (ECB) both held their respective monthly meetings. The EUR rose from a two-year low against the USD after Draghi said policy makers will wait until next quarter to assess whether additional stimulus measures are required. While no changes were made to policy last night, officials could alter "early next year the size, pace and composition of our measures," fuelling speculation the ECB could announce a start to sovereign and corporate bond purchases as soon as the next policy meeting on 22 January. The BOE kept benchmark rates on hold with the GBP broadly unmoved by the announcement. The JPY traded through the important technical level of 120 per dollar for the first time since July 2007, but has since fallen. As stated above, tonight the markets will be keeping a close eye on the release of non-farm payrolls in the US.

ECONOMIC CALENDAR

05 DEC AU Aig Perf on Construction Index Nov

US Nonfarm payroll / Unemployment Nov

US Net Change in Employment/Unemployment Nov

US Trade Balance Oct

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