THE Australian Dollar began trading last week at around 0.6443 British Pounds and 1.0377 US Dollars. The Aussie strengthened throughout the week to close at GBP 0.6445 and USD 1.0399 on Friday.
That strengthening of the Australian currency is in part attributable to the suspected end of China’s economic slowdown. On Thursday, the release of positive Chinese manufacturing data helped spur on the strength of the Aussie. China’s affirmative economic data has been met with worldwide increased risk appetite, thereby increasing demand for the Australian Dollar.
The Australian and US currency pair traded higher this Monday morning after the release of Australian retail sales and trade data. Retail sales rose better than anticipated at a seasonally adjusted rate of 0.5% (month on month) compared to expectations of a 0.4% increase for the month of September.
Looking ahead though, investors expect a cut in the Reserve Bank of Australia’s (RBA’s) cash rate target to 3.0% from 3.25%. This is partially due to the elevated currency causing damage in exporting industries such as manufacturing. Such a cut in the cash rate would induce speculators to expect weakening in the Australian Dollar. Monday morning trading suggested some softening in the Aussie ahead of the RBA decision.
Economists are also expecting data this week to show Australia’s unemployment rose from 5.45 per cent in September to 5.5 per cent October. The outcome would provide immediate justification for the expected RBA rate cut.
On the international front, all eyes will be on the outcome of Tuesday’s US elections. Imre Speizer, a senior market strategist for Westpac, told The Wall Street Journal, “I suspect (that) once the election is done, you might get a bounce in risk appetite, pushing the Aussie Dollar higher,” he said. “Just a fact that the event is out of the way would be a positive.”
Exchange rates at 09.00am, 5 November 2012
Composed by Saskia Johnston of 1st Contact Forex
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