Australian Dollar Outlook - 27 February 2013

Bell FX Currency Outlook The Australian Dollar continued its weak tone overnight as no clear result occurred in the Italian election and Fed President Bernanke testified before a US Senate committee.

Australia: The Australian dollar traded just above the 1.0200 level as there was no definite result in the Italian election between the three main parties and the prospect of another election in the near future appears to be the most likely outcome.

Prospects for a coalition being formed are still there with Bersani and Grillo the most likely to combine. The new Parliament reconvenes on March 15.

The uncertainty impacted European equities with all major indices lower but with the Italian MIB index falling the most at just under 5%.

US equities rose again after the selloff on Monday as better home sales data and consumer confidence lifted the major indices.

Bernanke defended his stimulatory policies in the first of two days of testimony before a US Senate banking committee saying
there are having a positive effect with no evidence of inflation appearing in the future.

The Fed President also said he planned to not extend the QE program beyond its current timeframe which fed into AUD and NZD weakness.

Today we will see the release of construction work done for Q4 where the market expects an increase of 1.5%qoq. Tomorrow we will see the capital expenditures figures for the last quarter.

Majors: Although the inconclusive election result in Italy concerned the financial markets the continuing improving US home sales data provided a positive lead with home sales rising 15.6% in January.

The Case-Shiller home index of 20 cities rose by 6.8% and the 10 city index by 5.9% yoy.

Consumer confidence figures revealed a rise to 69.6 on this index as compared to the 62 that was expected.

Tonight Bernanke will conclude his second day of testimony and attention will then quickly turn to the US$85bn of budget cuts that will automatically start on Friday, March 1 unless both sides of politics in the US agree to some new changes.

It is generally thought these reductions in spending will have a negative effect on the tentative US recovery in the short run but the better home sales and price figures are reassuring that the US economy is slowly improving.
Economic Calendar
27 FEB AU Q4 Construction Work done
EU Feb Business climate indicator
EU Jan Money Supply M3 %yr
US Jan Durable goods orders
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