Can commodity relief be sustained today?

With relatively neutral leads from offshore equity markets overnight, the direction of the ASX 200 index today is likely to be influenced by resource stocks. Major mining and energy stocks have enjoyed a good recovery over the past couple of days on the back of relief that commodity prices have stopped falling. However, the commodity price rally stalled last night leaving open the question of whether strong buying support for resource stocks can be sustained today.

News that US GDP grew at an annualised 2.3% rate in the 2nd quarter did nothing to dispel the view that the Fed will begin to increase interest rates this year. In particular, the Fed is likely to be encouraged by further gains in underlying inflation towards its target of 2%.

This has seen the Aussie Dollar drift lower as it heads into a big data week that will include the RBA meeting as well as both Australian and US employment data. Yesterday’s news of another steep decline in Australia’s terms of trade and weaker than expected building approvals has set a nervous tone for next week’s round of Australian data. Trend growth in building approvals has shown signs of moderating in recent months and if this continues will dampen one of the Australian economy’s pillars of strength.  Against this background the recent low of .7257 looms as significant short term psychological support for the Aussie Dollar.

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