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St. George: 2012 forecast for AUD/USD
Analysts at St. George believe that although Australian dollar will be affected in 2012 by the euro zone’s problems and potential slowdown in China, it will fall, but not much.
The specialists note that Aussie has shown greater resilience during bouts of risk aversion this year in comparison to previous episodes of risk aversion due to its strong underlying fundamentals.
The bank expects AUD/USD to trade around $1.0000 in March, in the $0.9900 area in June and near $1.0100 at the end of 2012.
Europe: event to watch today
- Italy's government will hold confidence vote on austerity in Senate around 2 p.m. GMT: the lawmakers are set to give final approval today to Prime Minister Mario Monti’s 30 billion-euro ($39 billion) emergency budget plan, including a pension overhaul and a levy on primary residences.
The draconian austerity measures will affect the nation’s weak economy. Data released yesterday showed that Italy’s GDP shrank contracted by 0.2% in the third quarter after 0.3% growth in the previous 3 months. The government forecasts contraction in the fourth quarter, 0.6% growth in 2011 and a 0.4% contraction in 2012.
- European Central Bank President Mario Draghi speaks today in Frankfurt after a meeting of the European Systemic Risk Board which begins at 4 p.m. GMT.
Yesterday the ECB made the region’s banking sector a Christmas present – the central bank lend a record sum of 489 billion euro ($638 billion) to 523 euro-area banks in 3-year loans. That was the first of ECB’s LTROs announced on December 8. The second one will be allotted on February 29, 2012. According to Goldman Sachs, the borrowings equal about 63% of the European bank debt maturing in 2012.
The majority of analysts argue that the ECB’s move won’t be efficient as the region’s banks can decide on their own where to invest the obtained funds and they aren’t very likely to invest in the peripheral debt.
Citigroup: warning for USD bulls
Currency strategists at Citigroup say that US economic data has so far been surprising the markets in a positive way referring to the recent labor, housing and trade figures. As a result, the Economic Surprise Index designed by the bank has risen from the record minimum in June almost reaching the record maximum at present.
According to Citigroup’s experience, the upside moves of the index correspond to US dollar’s selling periods. It happens as the market becomes more optimistic and risk sentiment improves making the demand for US currency decline.
The analysts don’t think that dollar will weaken this year as many traders have already closed their books for the year and others may be reluctant to take on big new positions right before the end of a quarter. At the beginning of 2012, however, if the economic data remains favorable, investors may decide that they have overestimated the negative effects of the euro zone’s crisis on the global economy. “The surge in data flow itself may be insufficient to reverse recent risk aversion, but it does suggest that dollar’s weakness could reassert itself more quickly and forcefully than many anticipate once conditions settle down,” says the bank.
CESI chart may be found http://www.bloomberg.com/apps/quote?ticker=CESIUSD:IND
Japan: government revised economic forecasts
Japanese government reduced forecast for the nation’s real GDP growth in 2012 fiscal year which begins in April from 2.7%-2.9% to 2.2% (y/y). The estimate of this year’s growth were lowered from +0.5% to -0.1%.
As the reason of the revision the officials cited negative impact of the yen's appreciation and the ongoing sovereign debt crisis in the euro area. At the same time, the next fiscal year Japan’s economy is expected to “recover moderately” on the assumption that the global situation starts improving.
Consumer prices will add 0.1% in fiscal 2012 (y/y) after showing declines in the previous three years, says the government. In fiscal 2011 CPI will drop by 0.2% (previous forecast was the 0.2% rise).
UniCredit: forecasts for EUR/USD and GBP/USD
EUR/USD: the single currency will keep weakening in the first quarter of 2012. The pair may slide to $1.25. If the tensions at the market ease, euro will be able to rebound, though sustainable rally seems unlikely.
GBP/USD: British pound may decline versus the greenback in the first half of the next year as US currency will keep enjoying strong demand, while the bank of England will continue asset purchases. In the second part of 2012 the outlook for pound is less negative, though UK economic growth will remain sluggish. As a result, the pair GBP/USD will be capped by the levels in the $1.60 area.
Chart. Daily GBP/USD
Chart. Daily EUR/USD
Check: EUR/USD Forecast and daily EUR/USD analysis
Check: GBP/USD Forecast and daily GBP/USD analysis
Analysts expect Aussie to weaken early in 2012
Analysts at Commonwealth Bank have so far lowered forecast for AUD/USD to $0.9800 by March 2012 and to $0.9500 by June 2012.
— general strength of US dollar due to improved US economic data (opposite views to Citigroup);
- funding demand for the US dollar in response to Basel III capital requirement;
- central banks slow down their diversification efforts out of US dollar into euro as the European debt problems persist.
Strategists at TD Securities expect Aussie to slide to $0.9500 by the end of the first half of 2012.
- slowing growth in the global economy with the deep recession in the euro zone and the United States;
-China’s economic slowdown.
Westpac economists think that AUD/USD will rise to $1.0200 in the near term as it’s supported by foreign direct investment inflows. Never the less, Aussie has been trading above its fair value in the $0.91 area for a long time and the odds are that it will depreciate.
Analysts at National Australia Bank also claim that Australian currency will end December at $1.0200, then drop to $0.9600 by March before rising gradually to $0.9800 by June and then to parity by September.
Barclays thinks that AUD/USD will weaken to $0.9800 by the first quarter and then rise to $1.0100 by June. In the short term Aussie will stay under pressure as the euro zone governments failed to commit to faster fiscal consolidation and the ECB refused to extend bond purchases. In the medium term, however, the bank retains a constructive view due to many factors including limited impact on Australia's macro fundamentals from deteriorating euro zone’s growth, expectations of more easing from China, stability in local-currency commodity prices which are helped by weaker currencies.
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