Australian Dollar Outlook - 21 March 2013

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Bell FX Currency Outlook: Despite quite reasonable movements in core currencies overnight, the AUD is largely unchanged this morning.

Australia: Positive sentiment returned to markets overnight which was a good thing! There wasn't much in the way of news from Cyprus, where officials are weighing up bail-out options and working on contingency plans if there is a huge outflow of deposits when the banks re-open.

Uncertainty about Cyprus looks set to be with us for a while, leaving the EUR (and by stealth you would say the AUD) vulnerable. The Cypriot Finance Minister is in Moscow for talks and this has raised hopes of some sort of deal with Russia (pending acceptance by the Troika).

Fears of contagion have eased (for now), and equity markets pushed higher overnight, with gains in both Europe and the US.

This morning's March FOMC meeting contained few surprises with policy settings left unchanged (QE3 at US$85bn per month and the forward guidance thresholds unchanged), and few changes made to economic projections.

The unemployment rate is again expected to reach 6.5% in 2015 and the economic assessment was slightly more upbeat, with "a return to moderate growth" expected "following a pause late last year".

Fed Chairman Bernanke noted the size of the Fed's asset purchases could be varied, that QE should not be seen as an "all or nothing", and just how the Fed can adjust the rate of purchases, as progress is made towards its goal, of a substantial improvement in the labour market.

Today in Australia, the Quarterly Labour Force data is released, which will provide an industry breakdown of the employment growth in the past two months, and that will be very interesting to read as this has been a major talking point in light of our stubbornly high AUD.

Majors: The USD was somewhat weaker overnight, especially against the EUR, reflecting the growing ease and adjustment moving through markets.

The GBP was volatile around the Bank of England meeting and the release of the UK budget, but ultimately finished largely unchanged.

Elsewhere USD/JPY was higher and has recovered all the lost ground post-Cyprus. That said, the JPY has underperformed and the new BoJ Governor is reported that he will undertake "bold easing".

The UK Budget was about as grim as expected, but the risk of a consequent collapse in GBP hasn't materialised.

Downward revisions to UK growth forecasts and more austerity saw GBP/USD briefly slide to 1.5040. Meanwhile the Bank of England vote was unchanged at 6-3 in March to keep asset purchases unchanged.Economic Calendar21 MAR AU RBA Bulletin (incl. Foreign Exchange Transactions)NZ GDPUS US Treasury Auctions 10-year TipsUK Public Finances

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