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Rate decision makes little impact on today’s index

15.25 AEST, Tuesday 4 September 2012

Rate decision makes little impact on today’s index
By Ben Taylor (Sales Trader, CMC Markets)

Our markets have remained poised for this week’s ECB meeting to take its cues. No change on the rate decision today was widely expected and made no real material impact on today’s index. The Aussie dollar despite rallying on today’s rate decision statement, continues to remain under pressure as expectations for further rate drops increase following on from recently poor economic data.

It seems the RBA wants to wait and see how its recent rate cuts are filtering through the economy before committing anther cut. The recent down turn in data would however excuse you from believing that we may be in for a cut sooner than later.

The recent dramatic moves in Iron Ore are also starting to claim victims. Fortescue and BHP assessing weather projects are viable with the current conditions.

The issue of lower commodity prices is now starting to build around the investment community. We have not seen contagion yet, however we could see a pickup in volatility if no stimulus support eventuates from either Europe or China in a timely manner. There is a real likelihood that our commodity currency could get knocked out of the park if we see a continuous stall of stimulus.

There is a growing chorus of traders who believe the weak manufacturing PMI’s are supportive of policy easing from numerous central banks.

Attention is now turning to the ECB policy meeting on Thursday. Whilst it seems Draghi’s hands will be tied until the German court ruling we will however expect to hear continued support for the idea of an ECB bond buying program to support the Eurozone as needed.

Bernanke’s talk last week also means that this Friday’s non-farm payroll numbers will be of particular importance. The American labour market is of grave concern as unemployment causes suffering and wasted talent, Bernanke is looking to right this wrong and therefore any additional fall off in jobs numbers is expected to be met with strong stimulus support.


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