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Currencies AUD Compass Directions Afternoon Report Wednesday, 7 December 2011

Mounting speculation that European leaders will finally agree on a plan to address the region’s debt crisis has seen risk appetite continue to improve in Asian trade today. Greek Prime Lucas Papademos has received parliamentary approval for the 2012 budget which will cut the budget deficit to 5.4%. In a case of boundless optimism, German Finance Minister Schaeuble said that the recent downgrading of outlook for 15 European Nations by Standard and Poor’s would only spur leaders to achieve more at the upcoming European Summit. The EUR closes the Asian session mid-range at 1.3415.

There is also increasing evidence that Asian economies have largely withstood the European debt crisis as investors in the credit markets appear to be pricing in credit ratings upgrades across the continent. 5 year credit default swaps for Asian countries such as China, South Korea and Indonesia have climbed significantly less than those for the 17 Eurozone countries excluding Greece. Asia’s 10 biggest econo-mies excluding Japan has expanded by an average of 5.2% in the third quarter, a rate which is three times higher than that of the Euro-zone. The central banks of these 10 nations hold $5.2 trillion in currency reserves or more than half of the global total of reserves. The Australian dollar rose closing the day at 1.0265 as the country’s third quarter GDP increased by 1.4% compared to analyst expectations of 0.8%.

Asian stocks gained with the MSCI Asia Pacific rising more than 1% and S&P 500 futures have risen 0.4%. The Hang Seng Index has gained 0.93% to 19,117 while the Nikkei is up 1.12% to 8,671. The ASX 200 has closed the day 0.72% higher at 4,292 with investors hopeful for a new deal in Europe and better than expected economic growth data sent financials, telecoms and healthcare stocks higher.

Commodity prices firmed in trade today. WTI Crude rose marginally by 0.16% to $101.45 as the EU announced that it may ban imports of Iranian crude and US stockpiles continue to decline. Precious metals consolidated with gold higher by 0.13% to $1,734 while silver was flat at $32.76. Soft commodities were mixed while copper rose 0.43%. Overnight we have the release of the UK Manufacturing Pro-duction and German Industrial Production data.

GOLD was very quiet and trapped in a tight range in the Asia trading session today as we approach a key cluster of resistance levels and the Euro continues to consolidate which is not helping the upside momentum in commodities right now. We did not see any direction today but prices did finish up towards the top end of the days ranges and we expect Europe to take the AUD higher in early trade as US equity futures gain and GDP improves which should lift gold price. Gold traded in a $1,725-31 range and finished the session unchanged at $1,730. There is little toad to this mornings report as we gold traded in a $6 range today as currencies failed to find any real direction apart form the AUD which did push higher on the day, helping to support gold. We should see European traders push prices higher early in the session as equities gain and if the AUD can break higher above 1,0330 we could see a much bigger move in gold tonight. Solid offers remain at $1,735 and then $1,750 is the key level in the shortterm.  We remain long with stops below $1,700 for now and we look to buy again on a break of $1,735 tonight. A failure on this level in early trade could see some selling pressure return targeting $1,717 but this should limit losses on the night should we see any.

AUD/USD shot higher during the late morning as the market was surprised by must better than expected GDP data which now has most economist asking why did the RBA move on rates yesterday! The AUD price rallied to 1.0285 as the top for the day as the other major currencies lack of movement capped the upside potential. Weak Chinese industrial comments weighed on the price during the afternoon with the pair dipping back towards 1.0260 to close out the day. The quiet nature of the markets is giving an uneasy feeling that we are in for a big swing session despite the expectations that the market will wait for announcements from the Thursday and Friday Eurozone meetings.  The topside potential, if the 1.0330 level breaks is hard to gauge with the bounce likely to only happen on positive comments or moves in European and with the market hoping and praying for a positive result bullish sentiment wouldn’t be far behind. However, we still favour the downside overall but everything has to be expected in markets like these.

 

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