John from Moneycorp

Australian dollar update 21/09/2011

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    The Australian dollar continues to take its lead from the ongoing Eurozone sovereign debt crisis. With Greece moving ever closer to default, investors’ appetite to buy the high yielding currency is being sorely tested.

     

    The Australian dollar did briefly benefit on news that the country’s exporters helped to post an improved trade surplus of A$1.8lbn during July.

     

    Another positive note saw consumer confidence rise by a very impressive 8.1% from a month earlier – possibly driven by the hope that the Reserve Bank of Australia will cut its benchmark rate from the current 4.75% level, as global growth prospects decline.

     

    The construction sector saw the number of new housing starts dip by 4.7% during the quarter ending June2011, with weakening employment prospects suggesting any future rate movement will be a reduction.

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    Currently, we are seeing some weakness in the Australian dollar.

     

    The stock market’s volatility have assisted fluctuations. When there is increased risk, investors pull out of commodity currencies such as the Aussie dollar - over the past 2 months, the Aussie dollar has struggled when the stock market has been adversely affected (particularly in early August and again now).

     

    Typically investors sell high yielding assets when there is fear concerning the markets hence why the GBP/AUD exchange rate has improved for Aussie dollar buyers.

     

    With worries remaining over Greece, and many of the Eurozone's economies, until a solid plan of action is formulated we are likely to continue to see dollar weakness, with the pound caught somewhere in the middle, although volatility will probably be the only real constant

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    We have seen the Aussie dollar strengthen slightly overnight – this was due to renewed optimism that world finance leaders were close to a long-term solution to Europe's debt crisis.

     

    Regarding Greece, and their economy, the general mood was more positive however investors/traders are still concerned.

     

    Thanks

     

    John

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