The Australian dollar inched lower in thin trading Wednesday, with a heavily watched upcoming Italian bond auction keeping investors cautious.
That bond auction in Italy–the world’s third largest bond market–is set for later in the global day and will be a key gauge of whether distressed government bonds will be purchased by European banks after the European Central Bank’s cash infusion last week. With concern about Europe remaining high, investors were seemingly looking past a report showing that U.S. consumer confidence hit an eight-month high in December.
In addition, the holiday-thinned action was also bringing caution given a lack of volume could bring more whip saw price action, particularly for the already volatile AUD.
At 0500 GMT, the AUD was trading at US$1.0158, down from US$1.0171 late Friday. Against the JPY, the AUD changed hands at Y78.984, down from Y79.42. AUD/NZD headed lower from early highs of NZ$1.3159 to NZ$1.3110, as corporate year end balancing led a rally in NZD/USD from $0.7716 to $0.7756, but the cross later bounced back to NZ$1.3131.
Within the local fixed income market, the focus was on Western Australia as that state’s government became the latest to lower its 2011-12 budget forecast, lowering a projected surplus to A$209 million from a May forecast of A$442 million.
“Risks to the global economic outlook have intensified significantly since the May state budget,” said Western Australia Treasurer Christian Porter.
Even so, Western Australia appears to be in a better position that other states like New South Wales and Queensland, with Porter saying the state economy is still expected to grow 4.75% in 2011-12, easily outstripping the broader Australian economy thanks to the state leading the country’s mining boom with massive iron ore and natural gas projects.
EasyForexNews Research Team