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Risk assets continue to rally as US polling begins

11.46 NZST, Wednesday 7 November 2012

Risk assets continue to rally as US polling begins

By Andrew May (Sales Trader, CMC Markets New Zealand)

The gloves are off for most risk asset classes as we head to a nail biter of an election result of just who will win the US presidential running and ultimately the world’s strongest economy for another four years. In one corner Republican candidate Mitt Romney, who most say will effectively cease the present reform of money printing and avoidance of hefty tax increases. While in the other, current US President and Democratic rival Barrack Obama, who with the fiscal cliff vastly approaching, continues his pledge of job growth and keeping interest rates lower for longer.

Either way expect a tumultuous continuation of the rally we've witnessed over the last 4-5 days. The NZDUSD is hot on the heels of last night’s Reserve Bank of Australia rate decision to keep rates on hold at 3.25%, effectively opening itself up to further rate cuts, found itself eyeing US 83c briefly touching an overnight high of 0.8290. The cross pair has had its best rally since early September as investor sentiment underpinned a return to solid risk appetite of aggressive portfolios. Expect a firm entrenchment at 0.8270-75 with a view to a post-election resistance of 0.8320-50.

Commodities are also enjoying the jubilant run and stocks have jumped as voters head to the polls to cast their ballot. West Texas December crude shot up $2.82 or 3.26% to US $88.46 and Gold up a huge $32.10 or just under 2% to US $1715.30 oz. The Dow Jones, in late trade and defying usual Election Day performance closed up 133.24 points or 1.02% to 13,245.68. Not since the 2000 election of Al Gore vs George W. Bush have markets proved so strangely and dramatically optimistic.

All Kiwi cross pairs were additionally boosted locally in the overnight Fonterra milk price auction, up 1.6% since the previous auction. However most localised data due later this week (employment figures and retail card spending) will be overshadowed by an election result that is surely too close to call.

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