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Australian Dollar to Track Risk as Markets Digest G20 Outcome.

Summary: The Australian Dollar is likely to look past the local economic calendar to trade with the shifting trends in risk sentiment as traders digest the outcome...

The Australian Dollar is likely to look past the local economic calendar to trade with the shifting trends in risk sentiment as traders digest the outcome of the G20 summit in Pittsburgh and a slew of high-profile releases from the US. Australian Dollar to Track Risk as Markets Digest G20 Outcome Fundamental Forecast for Australian Dollar: Bearish - New Home Sales Surge, Matching Record Gain in August - RBA Says Financial System Resilient But Risks Remain The Australian Dollar is likely to look past the local economic calendar to trade with the shifting trends in risk sentiment as traders digest the outcome of the G20 summit in Pittsburg and a slew of high-profile releases from the US. The communique released following the meeting was unsurprisingly vague: leaders committed to come up with new bank capital requirements by the end of next year and put them in place by 2013, agreed to reform compensation practices to align risk-taking with bonuses, and said they will reform the International Monetary Fund to give greater say to emerging economies like China. Concrete policy details on these proposals were naturally scarce, leaving the markets to wonder how countries will put them into practice. The first hints of that will come from a post-G20 meeting of European Union finance ministers taking place over the weekend, with the outcome likely to have implications beyond the currency bloc to shape risk appetite at the beginning of next week. Further ahead, the US economic calendar is packed with scheduled event risk, leaving the door open for volatility as traders continue to look to Wall St to set the pace of global equities and with them risk sentiment at large. Finally, while the G20 vowed to keep stimulus measures in place until a global recovery is firmly in place, clear signs of scaling back expansionary policy are already emerging from the US Federal Reserve and the Treasury Department. FDIC Chairman Sheila Bair added fuel to speculation that US policymakers are starting to back-track on expansionary policies, urging to end bailouts for large banks on Friday. These forces could spur the long-awaited downward correction in risky assets in the week ahead, taking the closely correlated Australian Dollar long for the ride. On the economic data front, Private Sector Credit is set to show that lending to businesses and households grew just 2.7% in the year to August, the slowest pace on record, hinting at mounting headwinds for the buoyant Australian economy. Coupled with unemployment at a six-year high of 5.8% and expected to continue steeply higher into 2010, this outcome bodes ill for consumption and thereby overall economic growth as Australians are unable to earn or borrow to finance their spending. A shallow rebound in Retail Sales will offer little solace: receipts are expected to rise 0.5% from the previous month in August; this puts the annual growth rate at about 5.3%, a hair above July's five-month low of 5.2%. September's AiG Performance of Manufacturing report may prove interesting: the metric showed that the industrial sector expanded for the first in 14 months in August, and traders will be keen to see if the trend continues, though markets may be getting desensitized to improvements on this front amid constant chatter about global rebuilding of inventories in the financial media. Finally, the annual growth rate in Building Approval is set to turn positive for the first time in 14 months, but this too may pass without little fanfare after last week's jump in new home sales was chalked up to the effect of the government's first-time home buyer credit.

2009 Al Bawaba (Albawaba.com)

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Publication:Mena Report
Date:Sep 26, 2009
Words:640
Previous Article:Full G-20 Statement.
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