AUD recovers after freefall sell off

• AUDUSD recovers to 1.0000 from a low of 0.9660 on Thursday last week
• Market trading on rumours the IMF is preparing a $600 Billion Euro bailout but nothing concrete announced
• Italian Govt now has to pay 7.24% on 10 year debt, how long can it keep paying that kind of interest?
• US consumer confidence smashes estimates, weekly unemployment claims remaining low, US thanksgiving retail sales up 22% from same time last year as the US economy continues to improve.
• Chinese manufacturing data out last week indicates a contraction month on month, a real negative and one of the major causes of the sell off of the AUD last week.

AUDEUR (EUR/AUD)

• AUDEUR 2 weeks ago was 0.7526, fell to 0.7236 Wednesday last week, now stands at 0.7510 a full recovery
• Germany holding firm, saying printing money is not an option forcing peripheral countries to force through budget cuts to get their books in order.

AUDGBP ( GBP/AUD)

• AUDGBP has similar path, from 2 weeks ago fell from 0.6450 (1.55) to 0.6225 now back up at 0.6426 almost a full recovery
• U.K chancellor announced Britain will fail to bring the budget back to surplus in 2014-2015,

AUDNZD ( NZDAUD)

• Almost no movement in the past week for the pair, holding at 1.3050-1.3150 ( 0.7600)
• HSBC upgrades NZ growth expectations in 2012 to 5% growth,  unemployment to drop to 5%.

General Consensus

The Australian dollar continues to be volatile governed by overseas events. A recovery this week in the AUD is mainly based on rumours of a IMF bailout of Italy.

You get the feeling we are in holding pattern with Italy frantically trying to get its debt under control while international investors pull their money out of Italian debt on mass. This has not yet forced Italy to seek outside help, it could be a matter of time.

The European debt crises has eroded confidence around the world, slowing the European economy and the UK economy. The Chinese data out last week that sparked the sell off, demonstrated proof that China now is beginning to slow due to Europe. This will in turn slow Australia over the medium term, and perhaps could be a consensus for a RBA rate cut next Tuesday.

Matthew Dawe

Corporate Foreign Exchange Dealer