Aussie Dollar Trades Through Six Month Lows | May 23, 2012

After making significant headway throughout yesterdays domestic and in early European trade, the Australian dollar resumed its downward rout overnight with price action briefly crossing the downside of 98 US cents earlier this morning, representing fresh 6-month lows. Risk currencies in general remained defeated despite positive leads from European markets which saw the FTSE, DAX and CAC record solid gains. For European markets it remained a ‘no news is good news’ environment with moderate optimism ahead of the EU Summit Wednesday. European leaders including new French President Francois Hollande will attend an informal dinner with the primary agenda expected to be centered on ways to promote growth and employment in the region. It’s also expected to see Hollande put forth the importance of implementing a Euro-bond which will yield little result.
U.S stocks erased earlier gains with continued uncertainty across the Atlantic the primary catalyst. A solid existing home sales report provided some earlier upside momentum, however European fears dominated by the close with the DOW and S&P500 finishing largely flat on the day.
Meanwhile, consumer prices in the UK continued to moderate according to official inflation data released overnight with headline inflation slowing to an annual pace of 3 percent from a previous 3.5 percent while core inflation slowed to 2.1 percent from a previous 2.5 percent. Sterling outperformed risk counterparts overnight and saw on moderate losses against the greenback relative to the Euro and commodity units. After an early week reprieve, the Euro pared gains overnight with EURUSD price action moving to lows of $US1.2657 and currently remains under pressure below $US1.27-figure.
With a reasonably light day in terms of local economic data, we anticipate the key directive for the local unit will remain regional equity markets with the Conference Board Leading Index the only low-tier theme domestically. Japan will also be a primary focus with the Bank of Japan interest rate decision due today which has seen broad based Yen weakness in the lead up, with some corners of the market anticipating further easing measures.