Australian Dollar Outlook - 12 December 2012

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By Christine Gaylican | December 12, 2012 11:20 AM EST

Bell FX Currency Outlook: The Australian Dollar has rallied to its highest level in almost three months after a rise in German investor confidence and more optimism regarding the US fiscal cliff (read - avoiding go over "thine cliff").

Australia: The AUD reached USD 1.0530 overnight which is its highest level since 17 September. The AUD's strength was firstly attributable to the release of the economic sentiment indicator in Germany, which rose to 6.9 points, from (15.7) in November.

This result has "managed" fears regarding Germany dipping into recession in 2013 and led to European equity markets having a strong night.

This sentiment fed into the US markets which were buoyed from their own optimism surrounding US debt negotiations, which was the second trigger for AUD strength. News reports indicated progress being made in talks between Republicans and Democrats, with the two parties trying to reach an agreement on measures to reduce the deficit, while avoiding a 'fiscal cliff' of automatic spending cuts and tax hikes due to apply from 2013.

Locally, the NAB Monthly Business Survey was released yesterday and was on the weak side, implying a slowing in GDP growth in the December quarter to ~ 2¼%, which is definitely below trend.

In Australia today, Westpac's consumer confidence index is released and this series has been improving gently since April.

This afternoon, RBA Governor Stevens is speaking in Thailand. We feel the AUD will stay above 1.0500 today and ask you to look for announcements regarding the US Federal Reserve may announce fresh stimulus measures on Wednesday (US time).

Majors: The US Dollar was generally weak as most currencies experienced a decent rally overnight. The release of the sharply better-than-expected German ZEW business sentiment survey for December underpinned the move.

The EUR regained to move above 1.3000 once more. The fiscal cliff discussions are seeing some senior Republicans
open to ceding some ground on Democrat aims to raise taxes on the wealthiest from 29.6% to 35%.

However, Speaker Boehner said he is still waiting for President Obama to propose further spending cuts.

Tonight the US FOMC meets and the talk is for Operation Twist to be replaced with between US$25-45bn of outright Treasury purchases per month (along with continued buying of MBS). Also tonight, Eurozone industrial production figures for October are released.
Economic Calendar
12 DEC AU Dec Westpac Consumer Confidence
EU Oct Industrial production
US Monthly budget statement
US FOMC Meeting
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