Go Markets Aus

FX Market Commentary - 3rd March 2010

Global markets found moderate strength overnight as investors took heed to news the Greek government are likely to respond to calls by the European Union to reign in their growing budget deficit, with the government set to announce as much as EUR4.8 billion in deficit cuts. European economic news saw Euro-Zone Consumer Price Index recorded annual growth of 0.9 percent falling in line with economist expectations. Producer Price index rose 0.7 percent against the expected 0.6 percent growth representing an annual contraction of 1.0 percent. Across the channel saw UK construction activity contracted further in February, with the UK PMI Construction failing to meet estimates recording a level of 48.5 from a previous 48.6. Economist had expected a moderate rise to 48.9.

The US dollar was mostly weaker across the board with dollar index which measures the dollar's value relative to six major foreign currencies fell 0.22 percent to 80.48.

As expected, the Reserve Bank of Australia announced the benchmark interest rates have been increased 25 bps to 4 percent. The communication by Governor Glenn Stevens suggested further adjustments would be likely with the final paragraph of the communication stating “Interest rates to most borrowers nonetheless remain lower than average. The Board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average.”

Overnight, strength in global equities and key commodities assisted the Aussie dollar to push over the 90 US cents mark. At the time of writing the Aussie dollar is buying 90.3 US cents - we can expect movements to be contingent on Gross domestic product due for release at 11.30 AEDT. Fourth quarter GDP is expected to show 0.9 percent growth from 0.2 percent in the third, to represent annual growth of 2.4 percent.

Afternoon Comment

The Aussie Dollar has traded in a tight 30 pip range through the domestic session with this morning’s GDP result and moderate strength in equities keeping the local unit buoyant throughout the session. Gross Domestic Product grew 0.9 percent in the fourth quarter representing annual growth of 2.7 percent. This certainly kept the Aussie dollar well supported however provided little upside momentum given the GDP result matching estimates. For now, the resilience of the economy is likely to spell continued support for the Aussie and at the very least adds credence to yesterday’s decision by the RBA to lift interest rates by 25 bps. At the time of writing the Aussie dollar is buying 90.3 US cents.

Europe’s largest economy, Germany and the broader Euro-Zone will report retails sales for January and both will release the Purchasing Managers Index for February.

Key news from the US includes ADP employment data which is estimated to show a decline of 9,000 jobs in February. The ISM Non-Manufacturing Index is expected to increase to 51 from a previous reading 50.5. Fed's Beige book will also be released, which shows a detailed account of the views of analysts, market experts and economists in 12 Federal Reserve districts, in relation to the near-term economic outlook and current business conditions.