Australian Dollar Outlook - 07/23/2012

Bell FX Currency Outlook: The Australian Dollar has retreated from its recent highs over 1.0400 to begin trading this week in the mid 1.0300's as news from Europe continued to dominate the financial headlines.

Australia: The AUD fell from its highest levels in six weeks after the Valencia region in Spain requested formally a bailout from the Spanish central government to help repay its indebtedness. This sent major European indices lower again and the pessimism swept over to the American markets as well with all major indices lower as well.

A Chinese official said that Chinese GDP growth was more likely to continue to moderate to 7.4% pa year on year growth in Q3 which is only slightly lower than the last figure released earlier this month. Interestingly the Bank of America commented that they believed that the official growth figures from China which many analysts have questioned the accuracy of were, in fact, correct.

Today in Australia we will see the release of the Producer Price Index for Q2 which will give us a good indication of the likely Q2 CPI figure due on Wednesday. The market expects a quarterly figure of 0.3% and 1% pa for the last 12 months. On Wednesday, most analysts are predicting a core inflation figure of 0.6% for the quarter and a 1.9% year on year result. Sandwiched between these two releases will be HSBC's PMI flash manufacturing data for July. With the European situation still the focus of the financial work, the AUDEUR continues to move to new heights almost daily.

Majors: The troubles in the Spanish Valencia region overshadowed the formal approval of the EUR100bn package to recapitalise the Spanish banks by all European finance ministers late last week. This will be done through the Spanish government. Commodities were generally lower with WTI oil retreating slightly lower to just under US$107 a barrel and all major base metals were weaker.

Gold rose a touch to US$1,584 an ounce as it was reported the Russian central bank was adding to its gold holdings.

Major equity market indices all declined with many global banks suffering the worst of the selloff. The Spanish Ibex 35 index was down by over 6% as their bond yields again jumped over 7% for a 10 year maturity (7.19% pa). We expect to see further weakness in the EUR in the coming months as many analysts have a target rate of 1.1500 for the EURUSD over the next 3-6 months.

Economic Calendar
23 JULY AU Producer Price Index Q2
FR France and Germany To Sell Bills
US Chicago Fed Nat Activity Index JUN
EC Consumer Confidence JUL

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