Good Morning,

U.S equities finished moderately higher on Friday following solid reports on personal spending consumer confidence. We also saw mild optimism across the Atlantic with Euro region finance ministers on Friday agreeing to lift the size of regions financial backstop. The Euro-Zones permanent fund the European Stability Mechanism has now been lifted to 500 billion-euros totalling 800 billion-euros when including the temporary fund (European Financial Stability Fund) and 102 billion already dispersed.

Amid the mixed rhetoric and occasional bouts of uncertainty, it would be fair to say it's been an outstanding start to 2012 with U.S equities posting their strongest first quarter since 1998. The S&P500 which is often regarded as a broad barometer of market sentiment has finished the quarter near 13 percent higher, with the tech heavy NASDAQ recording advancing a massive 19 percent to levels on par with heady days of the 'dot com' era. Simmering Euro-region debt concerns in addition to a decidedly stronger economic outlook into the United States has boosted market sentiment considerably, but constructing a synopsis on how this 'optimism' has translated to currency proves to be a tad more complex than the typical risk-on/risk-off directive. On balance, economic feedback from the U.S has outpaced expectations particularly employment growth which is critical part of the equation of sustainable economic growth, this in-turn has added a second tier to the US dollar's appeal as a portion of the market begins to unwind stimulus expectations. In short, accommodative policy set by the Federal Reserve has provided a solid platform for stock performance, while the premise of the Fed neutralising accommodative policy has given the greenback intermittent support while retaining it traditional safe haven appeal. How long this 'two pillars of support' scenario can play out remains to be seen, but it's clear 2012 has seen the US dollar - to a degree -  respond in kind to what appears to be a glimpse of light at the end of the tunnel.

Since the recovery began, it would be reasonable to expect risk currencies such as the Australian dollar to outperform alongside sentiment barometers such as the S&500; however the first quarter of 2012 has seen the Aussie dollar adhere to a more complex set of directives yielding interesting results.  In contrast to the 12 percent year-to-date advance posted by the S&P500, the Australian dollar has risen a comparatively meagre 1.3 percent. Using the 2012 Aussie dollar high as a reference point, we can see since this high of 1.0856 was achieved in late February; the local unit has fallen 4.7 percent while the S&P500 has advanced 3.1 percent. Interestingly, in this same period the Euro has finished the quarter largely flat against the greenback.  

The local unit has kicked off the week in fine form driven by an unexpected rise in the official Chinese PMI Manufacturing release over the weekend. At the time of writing the AUDUSD pair has bounced 1 percent with price action comfortably around the 104.5 US cent region.

The week ahead from the United States will once again see jobs become the primary focus with the usual conjecture guiding markets ahead of Friday's non-farm payrolls. Economists anticipate another solid month of jobs growth with the median estimates showing 210,000 newly created jobs in March with the official unemployment rate to hold steady at 8.3 percent representing four consecutive months of 200k+ new positions. Well regarded precursors such as ADP private employment gauge, challenger job cuts and the weekly unemployment claims should sway market sentiment ahead of the official release on Friday. Top tier U.S data also on the docket this week will be ISM manufacturing numbers on Monday with the FOMC minutes on Tuesday.

Meanwhile, local pundits will be keenly watching the RBA's interest rate decision on Tuesday which is expected to see the overnight cash rate remain on hold at 4.25 percent. In the absence of an unexpected cut, the ensuing RBA statement will provide the guidance for the Australian dollar with any emphasis of a deterioration in local conditions likely to see the local unit sink lower. Earlier on Tuesday, the release of February retail sales numbers will act as a timely release ahead of the rate decision later in the domestic session. Among other mid-tier themes market participants will be watching closely at the TD securities inflation gauge on Monday with trade balance data due for release on Thursday.

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