The Australian economy, with its great dependence on exports, has been hit hard by the global economic slowdown, but now finds itself well-prepared for an improvement in the global economy, especially that of the US. The aussie has benefitted from this, and has been an exceptional performer in 2012.

The US dollar weakened against most major currencies following Bernanke’s announcement that  interest rates will likely remain near zero until late 2014. However, the global slowdown has taken its toll on the Australian export sector, and the aussie may run out of steam as a result.

Increased speculation about a Greek default and concerns about the eurozone did not affect the aussie, as traders were busy snapping up the Australian currency this week.

Updates: The Aussie dipped under 1.03 as the ANZ Job Advertisements dropped by 0.9%, triggering worries about employment. It managed to climb back up as home loans rose by 1.4%. The better than expected Chinese GDP (8.9% annualized) certainly gave a boost to the Aussie that touched 1.0450 before sliding lower. Australian New Motor Vehicle Sales disappointed with a big drop of 2.9%. This prevented another move upwards. AUD/USD is struggling around 1.04. Australian employment data disappointed with a drop of nearly 30K jobs, although it’s important to note that full time jobs were actually on the rise. AUD/USD managed to rise above 1.04 once again, also on the European optimism.

Updates: The Australian dollar was hit by a weak retail sales report – sales didn’t grow during the previous month. After the initial fall, AUD/USD rose on European strength and reconquered 1.02. The Australian dollar enjoyed a leap of 8.4% in building approval – more than expected. Also the high Chinese trade balance surplus helps.

The markets may have bid farewell to 2011, but the European debt crisis hasn’t gone anywhere far, and continues to weighs heavily on risk currencies such as the Australian dollar.  EUR/USD ended the year 400 pips lower, and if investors continue to flock to the US dollar for safety, the aussie could weaken.

AUD/USD has been marked by great volatility throughout 2011, but traders would be wise to recall that at the  end of the day, the pair has recorded a 1% loss for the year to date. Thus the wild fluctations of the pair are clearly somewhat deceiving, when the movement of the pair is examined with some perspective.

Australia’s GDP rose 1 percent in the third quarter, which was higher than the markets had anticipated. The areas of strongest growth were consumer spending and investment in the mining sector. With the cheery economic news, a third consecutive interest rate cut in February by the central bank appears less likely. The US rallied against the Aussie last week, as the greenback continues to benefit from the crippling eurozone debt crisis.

After a sluggish 2011, the Australian economy is expected to post a respectable growth rate of  4 per cent in 2012. The news from down under is not all good however, as the debt crisis in Europe will wipe out $20 billion from expected revenue over the next four years. The outlook for the Aussie is cautiously positive, as there is renewed hope that European leaders will act forcefully to get the debt crisis under control.

The fragile Australian economy continues to struggle with the global slowdown and lower demand from China. In addition, the euro zone debt crisis is threatening to spill over into Australia by pushing up bank funding costs and causing European banks to reduce their exposure to Asia.