The Australian dollar recovered from a one-week low on Friday, helped by a pick-up in risk appetite after Asian stocks bounced, but a worsening global economic outlook is expected to limit gains. Japan’s Nikkei pared losses and U.S. stock futures pointed to a firm start, boosting demand for higher-yielding currencies and leveraged carry trades. The improved appetite for riskier assets came as dollar funding costs continued to drop in Asia.

“Virtually all measures of risk aversion continue to trend lower, with abating funding pressures leading the way,” said Sean Callow, currency strategist at Westpac.

“The medium-term backdrop remains poor for the Australian dollar. We note the market is pricing in a cash rate of close to 3.5 percent by the middle of next year and commodities are arguably priced in for a global recession.”

The Aussie recovered to 65.34 yen from a low of 63.37 yen and slightly lower than 65.63 yen late here on Thursday as the unwinding in carry trades took a breather. By 4:15 p.m. (0515 GMT), the Aussie had recovered to $0.6708 from a session of low $0.6545 and marginally lower than $0.6724 late here on Thursday. Still it was down about 4 percent from a two-week peak of $0.7015 struck on Nov. 4. It has fallen from those highs as nervous investors unwound risky trades and worries mounted that a global downturn will sap demand for commodities, of which Australia is a big exporter.

Commodities ended sharply lower on Thursday after another raft of U.S. data provided further evidence of a looming recession in the world’s largest economy. More proof of weakness could emerge later when the employment report for October is released. The U.S. economy is expected to shed 200,000 jobs, having cut 159,000 in September as the downturn forces companies to lower costs.

The International Monetary Fund cut its 2009 global economic growth to 2.2 percent, from 3 percent forecast in October. It expects the U.S. economy to contract by 0.7 percent next year, while the euro zone is expected to shrink by 0.5 percent, hurt by the financial market turmoil.

Central banks in Europe stepped in to support their economies by cutting rates. The Bank of England slashed rates by a 150 basis points, but the European Central Bank disappointed investors with only a 50 basis point reduction.

Australian bill futures extended recent gains, with investors pricing in chances of a 75 basis-point cut in December by the Reserve Bank of Australia (RBA). The central bank cut the cash rate by a larger-than-expected 75 basis points to 5.25 percent earlier this week after a 100 basis point cut in October.

Australian bond futures at the shorter end pared gains as safe-haven inflows eased. Three-year bond futures rose 0.02 points to 95.85, off a high of 95.925 while the 10-year futures contract slipped 0.055 points to 94.795.

—————(Snapshot at 4:15p.m./0515 GMT)—————–

FUTURES CASH YIELD

90-DAY BILL (DEC) 95.670(+0.030) 4.99 (5.12)

3-YR BOND (DEC) 95.850(+0.020) 4.13 (4.18)

10-YR BOND (DEC) 94.795(-0.055) 5.21 (5.18)

AUD/USD 0.6708 (0.6724) US 10-YR 3.69 (3.71)

—————————————————————-

AUD VS 2-YR 10-YR *AUD 3-YR/10-YR SPREAD

USD +249 (+251) +152 (+147) *FUTURES +1.055 (+0.975)

CAD +189 (+189) +147 (+142) *AUD 2-YR/10-YR SPREAD

NZD -184 (-177) -75 ( -85) *CASH +142 (+131)

—————————————————————-

source: http://www.afxnews.com

Related Content