The Australian dollar dipped slightly on Thursday in holiday-thinned trade, though remained just above parity with the USD. Helping risk-sensitive assets generally was a massive lifeline to Europe’s struggling banking industry, with hundreds of euro-zone lenders taking out a total of EUR489.19 billion ($639.96 billion) in low-interest loans from the European Central Bank on Wednesday.
Even so, the weakness in Europe that precipitated the lifeline, as well as a potential slowdown in China kept earlier gains in check and had traders selling out of some early week gains as the session wore on. Those concerns, St. George Bank said in a report, are likely to remain firm in 2012.
“While the Australian dollar has been vulnerable to growing problems in Europe, the (Australian dollar) has shown greater resilience during bouts of risk aversion this year in comparison to previous episodes of risk aversion. In our opinion, this reflects strong underlying fundamentals,” said St. George.
The bank expects the Australian dollar at US$1.0000 in March, US$0.9900 in June and US$1.0100 at the end of 2012. At 0515 GMT, the Australian dollar was trading at US$1.0080, down from US$1.0132 late Wednesday and off a session high of US$1.0107. Against the Japanese yen, the Australian dollar changed hands at Y78.66, down from Y78.81. Australian bonds firmed on the session, particularly on the long end of the curve.
As global sovereign debt worries have escalated, Australia’s federal government bond prices have surged, though often at the cost of state debt. Michael Turner, a strategist at RBC in Sydney, expects that dislocation to continue, especially after recent budget updates from the states revealed a worsening picture for revenue.
Softer household spending, a sluggish housing market, and anemic employment growth will continue to weigh on important own-source and revenue ahead.
EasyForexNews Research Team