THE ASIAN SESSION OUTLOOK
On trades last week, the Australian and New Zealand dollars generally gained as a report came out that the European Central Bank is exchanging Greek bonds for new securities which in turn raised prospects that Greece will get its second bailout, boosting demand for riskier assets.
Going into the Asian Monday session, the Australian and New Zealand Dollars are expected to experience tight volatility particularly on uncertainty in the global market where Europe remains on turmoil while US economic activity is intensifying. Meanwhile, at the back of ambiguity, optimism seems to remain on the Aussie as the ANZ Bank has hinted at further interest rate rises despite stronger than the expected $1.48 Billion first quarter profit.
Optimism continues to loom in Australia in recent weeks following the latest report on the job market where the economy has added jobs in the first month of 2012. Also, the current development in the US is boiling the risk appetite in the market, boosting the valuation of risky assets including the Australian dollar. Encouraging US economic data and the delivery of a Greek bailout package looking more certain is bringing positive vibes towards the Aussie and the rest of high yielding currencies.
As a precaution, economists warn that Australia’s resource-driven economy is about to encounter a year full of challenges. Although major economic sectors remain buoyant, the government continues to warn that 2012 is apt to be a rough year for employment. The South Pacific nation has largely avoided the worst of the global financial crisis, but recent emerging signs reveal a few key weaknesses.
For one, the high value of the Australian dollar, stemming largely as interest rates are relatively high in the country in the developed world, reduces the competitiveness of Australian exports. In fact, the strong Aussie is largely blamed for the loss of hundreds of jobs in Toyota last month, likely a testament to the vulnerability of the manufacturing sector. In fact, Manufacturing Minister Kim Carr has acknowledged that the value of the Aussie has already reduced global demand for Australian products. Likewise, the high Aussie is making matters more difficult for tourism, health tourism and educational services. Shifting sights to the labor front, the Unemployment Rate is pegged to rise this year despite an encouraging decline to 5.1 percent in January. Just last week, Qantas disclosed that it is planning to axe hundreds of jobs. About 1,000 bank workers were also told that they were losing their jobs.
Meanwhile with regards to the Yen, Japan’s valuation is expected to still experience slides as risk appetite is expected to improve following the Japanese central bank’s monetary easing last week, upbeat US data and hopes for Greece’s future. The Bank of Japan said Tuesday that it would pump $130 Billion more into its ailing economy, the latest push to combat stubborn deflation as domestic and global uncertainty intensifies. However, despite those events from other nations that weaken the Yen, the domestic economy remains strong, and this is anticipated to carry some strength to the domestic currency.
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