Lower AUD to overwhelm Grexit, commodities, results
While European investors fret about the possibility of a Grexit, unusual behaviour in selected local stock prices over the last week point to further gains for Australian shares. These gains may come regardless of the corporate results delivered by sixteen top two hundred companies today. Underpinning likely strength is further stability at higher prices of oil, copper and iron ore.
Stocks such as CBA and Domino’s Pizza have risen over the last five trading sessions, regardless of any potential negatives. This suggests a re-weighting by major global investors into Australian shares. The driver here is not the share price, but the currency adjusted price, and while the AUD sits below eighty US cents the support is likely to continue. This theory will be tested today by CBA going ex-dividend. Theoretically, CBA shares should drop by the value of the franked dividend at the open – close to $2.81. Any outperformance from that level would point to an ongoing international campaign.
Another potential kicker is the release of the minutes from the RBA February meeting. While the quarterly statement on monetary policy outlined the reasons for the rate cut, investors will look for a formal shift to an easing bias. Confirmation could see interest rate markets push towards certainty for a March cut, and spark further enthusiasm for Australian higher dividend yield plays.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.
Frequently Asked Questions about this Article…
While European investors are concerned about a potential Grexit, Australian shares have shown resilience. The focus has shifted to the currency-adjusted price of shares, with the Australian dollar's lower value supporting further gains in the market.
The Australian dollar sitting below eighty US cents makes Australian shares more attractive to international investors. This currency advantage supports further investment and potential gains in the Australian stock market.
Stocks such as CBA and Domino’s Pizza have risen due to a re-weighting by major global investors into Australian shares. This shift is driven by the currency-adjusted price rather than the share price itself, indicating strong international interest.
CBA going ex-dividend means that the share price theoretically should drop by the value of the franked dividend, which is close to $2.81. Any outperformance from this level could indicate ongoing international investment interest.
The release of the RBA's February meeting minutes could confirm a shift to an easing bias. This confirmation might lead interest rate markets to anticipate a March rate cut, potentially sparking further enthusiasm for Australian shares with higher dividend yields.
Stability at higher prices for commodities such as oil, copper, and iron ore underpins the strength of the Australian market. These commodities are crucial for the economy and can drive further gains in Australian shares.
The currency-adjusted price of shares is important because it reflects the value of shares in terms of international currency. With the Australian dollar lower, shares become more attractive to foreign investors, supporting market gains.
Investors can benefit from the current market conditions by focusing on shares that are attractive due to the lower Australian dollar and the potential for higher dividend yields. Monitoring RBA announcements and commodity prices can also provide investment opportunities.
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