• Australian Dollar finds its legs.
• Europe signalling, positive for Greece.
• RBA signals on rate decision.
• Equity markets spur risk appetite.

Over the last week the local currency has been particularly volatile with a host of market indicators and sentiment leading to sizeable overnight moves. What began with “recovery on Europe’s terms” ended with fresh-reminders from the RBA about the strength of the Australian economy.

The AUD pitched and fell late last week as fresh statements from the Eurozone had a significant impact on risk sentiment. Fitch Ratings had downgraded Portugal’s debt however Greece looked closer to an IMF backed solution. In the environment of largely lacklustre economic data and sluggish equity markets, there was little to direct the AUD which was looking stagnant if not soft at the 0.9000 level against the Greenback.

Bucking the trend was Retail Sales in the US, up 2.1% against -3.0% in the previous month, while it was a different result for the GBP and EUR pairings with the AUD posting strong gains amid speculation of a hung Parliament after the coming UK election and weaker growth prospects for  Europe. Holding the AUD firm against the USD were comments from RBA Assistant Governor Philip Lowe that “we need to ensure that inflation pressure remains contained”.

This week however has seen a host of indicators that have pushed the Aussie significantly higher including a successful Bond Issue for Greece (EUR5B), equity markets pitching higher on Monday (S&P500 +0.57%) whilst commentary from the RBA that Housing Prices are putting upward pressure on interest rates. The HIA New Home Sales figure of -5.2% was a significant improvement from the previous month and this gave the RBA enough reason to start spurring the Aussie higher with Governor Stevens noting that current prices “are getting quite high”.

Among housing data, commodity prices and resources led employment growth will push the economy towards capacity constraints. Based on interbank futures, traders currently holds the probability of an April rate hike at 66%, whilst the differential with US Government bond yields moved to their highest since mid 2008. Further commentary from the RBA will be key in pushing the Aussie higher in a house-price sensitive market.