Australian Dollar Outlook - 05 July 2013

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Bell FX Currency Outlook: The Australian Dollar has traded higher after announcements from the Bank of England (BoE) and the European Central Bank (ECB) pushed major European share markets higher.

Australia: While US markets were closed on Thursday for the Independence Day public holiday, the ECB and BoE pledged to keep their interest rates at low levels in order to support economic growth.

In currency markets, the EUR fell heavily as the ECB took the historic step of introducing forward guidance to its monetary policy framework. In the UK, the meeting of the BoE also ushered in a regime change of sorts by  suggesting current market pricing for the policy rate was "unwarranted".

The GBP fell heavily, down from around 1.5247 to a low of 1.5062. Today's session in Asia is likely to driven by portfolio positioning ahead of the US payrolls report later tonight. A better-than-expected release is likely to see USD strength, especially against emerging market currencies.

The falling AUD is playing an important role in easing financial conditions in the local markets, allowing the RBA to sit on the interest rate front for the moment. However,  that said, the common view is the RBA will eventually reach the view that further interest rate accommodation would be required by the economy, in spite of the weaker AUD.

With the third quarter looming and thereafter, official interest rates to continue falling in 2014 as mining investment winds back.

Australia's residential building approvals declined 1.1% m/m in May, following an outsized 9.5% m/m jump in April. Today in Australia, there are no key data releases.

Majors: he EUR fell sharply after the ECB provided strong forward guidance that monetary policy will remain very accommodative for some time in the euro zone at its meeting overnight. European governmentbonds rallied, government bond spreads in the euro zone peripheral economies narrowed and European equities gained solidly.

The Bank of England also met and communicated that monetary policy would remain loose which saw the GBP fall sharply. Tonight, the focus will be on US non-farm payrolls report for June. Markets are priced for an outcome at least as good as the 'official' 165k median forecast rise in non-farm payrolls.

The unemployment rate is seen ticking down to 7.5% from 7.6%, reversing the rise in May. Have a good weekend.Economic Calendar05 JULY AU AiG Perf of Construction Index JunGE Factory Orders MoM MayUS Change in Nonfarm Payrolls JunUS Unemployment Rate

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