Is The Aussie Gearing Up For A New Record?

Is The Aussie Gearing Up For A New Record?

The Australian Bureau of Statistics earlier reported that the Australian economy grew 0.7% in the 4th quarter of 2010. That was a slight improvement over economists' forecast of 0.6% and a significant improvement over the 3rd quarter's downwardly revised growth of 0.1%. As compared to the 4th quarter of 2009, growth was unchanged at 2.7% annualized. According to the press release, the solid improvement was buoyed primarily by the business investment, including inventory build-up and machinery investment.

Domestic consumption (specifically consumer spending) as a contributor to GDP was notably, suggesting to analysts that consumers are exercising caution, preferring to save rather than spend. Most analysts concur that, given the current circumstances, the Reserve Bank of Australia is unlikely to change the cash rate, fixed at 4.75%, anytime soon, with most analysts suggesting November.

The outlook for the first quarter of 2011 is not looking as encouraging, according to Wayne Swan, the Australian Treasurer, who estimates growth may decline by as much as 1%, fallback from the recently flooding generated by Cyclone Yasi. Nonetheless, analysts are confident that the country remains on track for the 20th consecutive recession-free year.

What is expected to keep the economy on the uptrend for the long term is the growing demand (primarily from Asia) for commodities from the commodity-rich nation. One economist predicts the country will be off to a slow start, but a giant boom should occur in the second half of the year.

In market trading today, the Australian Dollar remains above parity with its U.S. counterpart, with AUD/USD last at 1.0117; on the eToro trading floor, sentiment among traders is bullish in favor of selling by a ratio of 10 to 25. Against the Euro, EUR/AUD last at 1.3625, eToro trader sentiment is bullish by a ratio of 8 to 4 in favor of buying.

The Australian dollar edged higher as investors continue to move capital into higher yielding currencies. Technically the AUD/USD is poised to test the 1.0250 resistance level posted at the very end of 2010. A break of this level will lead to a new bull trend. Support is seen near the 50-day moving average which is hovering close to the par level.

Share By Barbara Zigah, Copyright 2011eToro Blog

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