Australian Dollar to Follow Risky Assets on Earnings, Greece Fiasco

Australian Dollar to Follow Risky Assets on Earnings, Greece Fiasco
Fundamental Forecast for Australian Dollar: Bearish


The Australian Dollar is likely to continue tracking global equities as a lackluster economic calendar fades into the background amid risk-driven trade as currency markets focus on another week of earnings and a still-festering debt crisis in southern Europe.
The currency markets remain highly sensitive to risk sentiment and the Australian Dollar is no different, with the 20-day correlation between AUDUSD and the MSCI World Stock index now at 0.82. Another week of first-quarter earnings reports - this time featuring such heavy-weights as American Express, Johnson & Johnson, Coca Cola, and Boeing – promises to keep the high-yielding currency following the ups and downs on Wall Street.
The Greek debt crisis and the following bailout fiasco further complicate the risky asset landscape. Indeed, investors have turned restless once again after the dust settled around the latest European Union rescue plan, with the yield spread between Greek 10-year bonds and those of Germany (the region’s benchmark) widening to more than 400bps for the first time in a week. Indeed, Greek Prime Minister George Papandreou is scheduled to begin a series of talks with EU and IMF officials – the principals behind any bailout effort – beginning on April 19. Athens has insisted that it still means to finance its budget shortfall in the markets, but traders will be acutely tuned in to the summit’s proceedings for signs that the southern European country will in fact pull the trigger on activating outside aid. - IS

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