Australian Dollar Outlook -22/10/2012

Bell FX Currency Outlook: The Australian Dollar has opened slightly weaker this morning and is poised to test further upside over the next few weeks should global economic data continue to show signs of improvement.

Australia: Currency markets on Friday night followed the lead of others where we saw equities higher, bonds weaker, a stronger US dollar, commodities and commodity currencies weaker.

Europe's trading session was steady Friday in Europe with the EU Leaders discussing movement toward a unified banking supervisor that will bode well for Spain and Greece. German Chancellor Merkel stated that only when the supervisor is set up can there be direct recapitalisation of banks by ESM bailout funds.

In Australia today, the Commonwealth Government will release the Mid-Year Economic and Fiscal Outlook at 11:00AEST. The Government will continue to target a small underlying cash surplus in 2012-13 after a AUD43.7bn (3% of GDP) deficit in 2011-12.

This will be the fourth consecutive mid-year update to make budget savings. The Treasurer said yesterday that over the past five years, savings measures, including those to be announced today, are equal to 0.9% of GDP.

This week in Australia sees the release of the Q3 CPI. Market expectations are for 0.6% q/q and 2.2% y/y and a headline inflation outcome of 1.0% q/q and 1.6% y/y.

The carbon tax introduced on 1 July will have boosted headline inflation significantly in the quarter but underlying inflation only modestly. The RBA will look through the effect of the carbon tax on inflation and has recently noted that inflation is currently well contained.

The Australian CPI data will be a focus this Wednesday and should set the tone for how the FX market will trade the RBA ahead of Christmas.

Majors: In currency markets, the EUR was not captive to headlines from the EU summit as markets had anticipated earlier in the week.

Oil prices were weaker on Friday night as global economic concerns and expectations that a major Canadian crude oil pipeline to the US would restart on schedule weighed on prices.

Spot gold prices declined, following US equities lower on economic uncertainty. Spot gold prices fell 1.1% and erased all of its gains since the US Federal Reserve announced QE3 in early September.

Base metals prices were broadly softer on Friday night while agricultural commodities prices were mixed on Friday. FOMC also meets mid-week and US and UK Q3 GDP data are due.
Economic Calendar
22 OCT NZ Public Holiday: Labour Day
AU RBA Assist Gov Debelle Speaks
JP Trade Balance
US FOMC Member Pianalto Speaks

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