Australian Dollar Regains Ground

on Sep 14, 2012

The Australian currency is fairing stronger against the US dollar, fuelled by growing expectations among investors that the US Federal Reserve will decide on further economic stimulus at a policy meeting this Thursday. At 12.00 AEST the Australian dollar was trading at $1.0372, up from $1.0323 on Friday. Michael Turner, currency strategist for the Royal Bank of Canada, said weak US non-farm payroll figures provided strong stimulus for the Aussie on Friday. “The Aussie’s been pretty well-supported since the employment data,” he stated.

The upward trend in the currency comes as a result of news from last week, which confirmed that the United States economy failed to generate any significant employment growth in August. According to data released by the US Labour Department, there were only 96,000 jobs added to the economy in August, compared to the 130,000, which were expected by the market. John Hilsenrath, Fed Watcher for the Wall Street Journal, believes the weak employment report might bring Federal Reserve Chairman Ben Bernanke off the sidelines to rescue the economy. A meeting of the US Federal Open Market Committee (FOMC) on Thursday and Friday is likely to result in a new round of quantitative easing, which would help boost world economic growth expectations and likely raise the Aussie over time.

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!m[](/uploads/story/369/thumbs/pic1_inline.png)The ECB’s announcement on Thursday that it plans to purchase bonds from weaker Eurozone economies also provided support for the Australian dollar. The news returned investors’ confidence in the ECB’s determination to rescue the struggling countries in the Eurozone’s periphery. “The ECB’s actions afford time, allowing risk appetite to stage a comeback for now,” said Vincent Chaigneau, a strategist at Societe Generale.

Last Monday the Aussie dropped 0.8 percent against the US dollar to a session low of $1.0231, its weakest level in more than a month, after an official purchasing managers’ index (PMI) for China fell below 50 in August, indicating a first-time contraction since November 2011. The PMI, which was compiled by the HSBC, recorded the lowest level of manufacturing growth since March 2009. As usual, the negative news from the Chinese economy significantly affected the Australian currency as the Asian country is Australia’s single biggest export market.

The euro dipped 0.3 percent to $1.2773, failing to hold its four-month high values after Greece’s coalition did not reach an agreement on €11.5 billion (£9.2 billion) of spending cuts and gave new life to lingering concerns of a yet to exacerbate debt crisis. “Traders are shaving their positions at the start of a week where we have quite a number of hurdles,” said chief strategist at FxPro Group Michael Derks “There’s a lot for the market to absorb and traders, having seen the euro climb quite rapidly over the past few trading sessions, are just being a little careful.” Mr Derks added. Expectations for the Fed to announce QE3 are likely to support the euro over the next few days, according to market observers. “The weak payrolls report has put QE3 firmly on the agenda for this week,” opined Annette Beacher, head of Asia-Pacific Research at TD Securities.


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