Australian Dollar Outlook - 02/28/2012

The AUD is stronger this morning, currently trading around USD1.0750 after looking markedly weaker during our local trading session yesterday.

Australia: The explanation for the rally is the increased optimism in the market after Germany signed off on the second bailout package for Greece, as well as the second long-term refinancing operation (LTRO) by the European Central bank taking place on Wednesday.

With renewed optimism comes increased demand for riskier assets, such as the AUD, with the heavy demand for our local currency seeing it rise almost 1% from yesterday's close. While many thought that yesterday's weakness was related to the uncertainty around the political stoush between Julia Gillard and Kevin Rudd, price action with the USD/JPY was more likely the influencing factor.

We are hopeful that now a resolution has been reached in Canberra, that the government can now return the focus to running the country in an effective manner. There is no local data due for release during our trading session today, therefore we expect the AUD to remain in a fairly tight trading range, and follow equity markets as well as offshore developments.

Majors: Improved data out of the US has reversed earlier losses, causing a rebound in equity markets as the sentiment in the region continued to recover. It was housing data that provided the buoyancy, with pending home sales rising by 2% in January, well above the market expectations of a 1% rise.

Historical data was also revised upwards for the month of December. January's result sees the housing re-sale data the highest it's been in 2 years. This boosted the S&P500 above 1,370.58 for the first time since June 2008. It wasn't the same across the Atlantic Ocean, with equity markets in Europe retreating, despite the bailout agreement being signed by German officials.

Germany's DAX fell 0.2% and the FTSE 100 also closed down 0.3% at 5916. Oil prices have been a concern of late, as
many believe that the increasing price of the commodity will hurt global growth, especially in the US.

It was reported last week that the oil price had risen to a 10-month higher of USD125.00 / barrel, but prices have since declined back to be below USD110.00.