Australian Dollar Outlook - 19 November 2012

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By Christine Gaylican | November 19, 2012 10:58 AM EST

Bell FX Currency Outlook: The Australian Dollar is trading back in the mid 1.0300's this morning as talks in the US concerning the "fiscal cliff" offered some encouragement that a compromise will be reached between Republicans and Democrats.

Australia: With the AUD touching below 1.0300 late last week on concerns about the US fiscal situation and the news the RBA had sold AUD directly to central banks, markets were buoyed modestly on Friday after both sides of the political divide in the US offered encouraging words that a compromise might be brokered.

Republican Speaker of the House John Boehner referred to his meeting with President Obama as "constructive" and Senate Majority Leader Harry Reid who is Democrat said both sides would have to give something up to reach a compromise.

With these comments US equity markets were slightly firmer with the Dow finishing up by 0.4% to 12,588 and the S&P 500 was up 0.5% to 1,360.

This was in contrast to European indices which generally fell as Europe's ongoing troubles affected the market and also some lower than expected corporate earnings from Vodafone and ICAP in the UK saw the FTSE index down by 1.3% after German DAX and Euro Stoxx 50 also slipped by a similar amount.

With the market generally predicting a 25bps decrease in the Australian cash rate at the next RBA meeting in early December, we would expect the AUD to trade in a modestly tight range in the next few weeks.

There are very few data releases this week in Australia although on Tuesday morning we will see the minutes of the RBA's November board meeting which should probably provide more evidence that they continue to have a generally easing bias in their monetary policy. RBA Governor Stevens speaks later that day in Melbourne as well.

Majors: Although the FX markets focus shifts back and forth between the woes of Europe and Greece in particular and the fiscal cliff issues the US is facing, we cannot forget about Japan which still has the third largest economy who will be going to the polls on December 16 after a snap election was recently called.

It is generally assumed that the opposition LDP has an excellent chance of winning and would try and influence the Bank of Japan to ease monetary policy.

With short term interest rates having been virtually nil for many years it is thought they would increase bond purchases further than in the past.

In Europe, finance ministers are meeting on Tuesday to finalise Greece's new budgetary austerity measures recently approved by the Greek Parliament.

Toward the end of the week trading is likely to be fairly light as the US celebrates the Thanksgiving holiday on Thursday. Later today we will some housing data from the US for October which will be looked at closely for further evidence that the housing market is continuing to improve.
Economic Calendar
19 NOV NZ PPI Input q/q
GB Rightmove HPI m/m
US Existing Home Sales
US NAHB Housing Market Index

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