Friday, 25 Mar 2011

Markets Brush Off European Woes as US GDP Improves

The Australian dollar extended its rally into the New York morning, reaching an all-high last set in December. US Real GDP growth was released with better than expected results and helped to pair recent dollar declines.

The market brushed off disappointing German business confidence data as the Ifo survey dropped in the month of March to 111.1 from 111.3. However, the report had an upbeat tone as it did beat economists' expectations of 110.6.

Traders have been giving strong bids to higher yielding assets this week while ignoring stress signals from the European periphery. Yesterday S&P downgraded Portugal's credit rating following the resignation of Portugal's Prime Minister José Sócrates in opposition to strict austerity measures that would accompany any EU bailout funds.

US real GDP was revised higher to 3.1% in Q4 which was up from its previous estimate of 2.8%. A change in private inventories was the largest driver of the differences between estimates.

At the opening of the US trading session, the EUR/USD was trading near its opening day price of 1.4160 but fell to 1.4120 following the release of the better than expected GDP numbers.

One of the stronger performing currencies of this week has been the Aussie dollar with the AUD/USD rising to its all-time high at 1.0250 from a low of 0.9950. A breach of the 1.0250 level may spur further buying of the pair. Support will come in at this week's low as well as 0.9800 and the mid-March low of 0.9700.