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Competing forces at play on Australian market

15.27 AEST, Monday 3 September 2012

Competing forces at play on Australian market

By Tim Waterer (Senior Trader, CMC Markets)

One look at the economic calendar for this week tells you that the next five days will likely be nothing if not eventful. An ECB meeting and the latest US jobs report could both have stimulus implications and as we have witnessed over recent months, the guessing game over central bank stimulus has been the prime mover of global financial markets.

Bernanke’s Jackson Hole address seemed to indicate that we could be just one dreadful US Non Farm Payrolls report away from QE3, which means that this Friday’s release takes on even greater importance than usual, which is really saying something.

Meanwhile, alternate investments to the US Dollar continue to revel in the anticipation that QE3 is imminent. Gold was among the most significant performers in reaction to Bernanke’s comments, with the precious metal potentially eyeing a return to US$1700 this week if upcoming US data supports the case for the introduction of QE3. The oil price reacted well to the markets interpretation of Bernanke’s speech, and while ever monetary easing is firmly on the Fed’s agenda the price of crude should find added support despite the current demand concerns.

It was looking like being a day to forget for the AUD with the currency losing value quickly as a result of the low Chinese PMI number released over the weekend and the negative Retail Sales data released locally. The -0.8% retail sales number for July was well short of the +0.2% expected. The AUD was already on the back foot to start the week after the soft Chinese PMI reading and the Retail Sales numbers today was like adding insult to injury. The result was the AUD slipped below 1.025.

While the AUD had a tough time of it today there could be further bumps in the road later in the week when GDP and employment data is released. A reversal of fortune on the local sharemarket stopped the AUD’s fall as it mounted an afternoon bounce-back. Overall though, the AUD continues to be an underperformer in the currency market as China and Iron Ore concerns suppress AUD appetite.

There were competing forces at play on the Australian sharemarket today which created a rather confused performance from the local index. A strong lead from the US market was largely offset by ex-dividend trading as well as dismal Chinese manufacturing data. The US holiday tonight seemed to throw a little more uncertainty into the mix too. Early on it seemed that the ASX200 was undecided as to which side of 4300 it belonged. However a fight back from the mining stocks which was at odds with the soft Chinese data we witnessed served to prop up the broader index.


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