httpvh://www.youtube.com/watch?v=-Bt12NwAPbg
AUD’s weak lead compounded by GDP.
• Safe haven assets perform well courtesy of Europe.
• Local data softens the Aussie.
• US, UK economies provide for a mild recovery.
We’ve watched this week as the USD strengthened across the board as safe haven assets like gold and US treasuries were held in greater demand. This has been particularly the case against higher yielding currencies such as the Australian dollar and Brazilian real as the market became increasingly concerned as it experienced Eurozone déjà-vu. Over the last week, the details of the 85billion Euro Irish rescue package were achieved, however given the political fall-out in Ireland, much has been made of the risk attached to the debt of other peripheral countries. Although Ireland is a relatively small contributor to Eurozone GDP and overall debt, should this turmoil be repeated with Spain for example the Euro will be treated with contempt. Either way, the Euro is likely to remain under pressure until at least halfway through 2011 as debt refinancing takes place and peripheral economies show signs of recovery.
The local data this week has undermined the Aussie with Construction Work Done (-2.1%), Company Gross Operating Profits (-1.5%) and GDP (2.7%) all worse than expected. These figures were only slightly redeemed by Building Permits (9.3%), New Home Sales (2.4%) and the Current Account Balance (-7.83B), however when the particularly weak GDP figure was released well below expectations the Aussie was sold off in style to hold it below 96 US cents. Governor Stevens provided risk-neutral commentary on the economy by saying that “over the coming year, we think that inflation will be pretty close to where it is now, consistent with the target” and that “there’s unlikely to be anything from us imminently” ahead of this Tuesday’s RBA meeting.
For economies elsewhere there’s been some support for the global recovery. The UK had an out of character run of firm data with GDP, Index of Services and Housing data all reflecting a mild recovery. US data was mixed, however strong Consumer Confidence (54.1) and Chicago PMI (62.5) provided some positive direction for risky assets. China posted a better than expected PMI figure which briefly spurred the Aussie higher in Wednesday’s local session. Interestingly Ben Bernanke mentioned in a speech this week that he was concerned about jobless figures which weren’t “materially” affected by economic growth. The comments come despite encouraging Jobless Claims figures last week and means all eyes are on Friday night’s US Non-farm Payrolls. We may see a rally for the Aussie should Europe compose itself until then.
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