Optimistic investors push market higher
THE sharemarket closed near its high for the year, marking it the fourth straight week of gains.
Investors are clearly more optimistic, and stocks have now risen 5.7 per cent since November 16 - the market's recent low.
For the week, the benchmark S&P/ASX 200 Index rose 31.4 points, or 0.7 per cent, to 4583.1.
Like last week, a batch of positive economic news provided evidence that global conditions are improving slightly. But unlike last week, the biggest announcement had to do with the US Federal Reserve.
The Fed's decision on Wednesday night to print another $US45 billion every month to breathe life into its long-term bond-buying program, at least until its unemployment rate drops below 6.5 per cent, guaranteed that more money would be sloshing around the global financial system.
It might not have been a positive announcement, but it did not lead to the market dropping off. It saw the dollar jump to a three-month high, hitting US105.80¢ early on Thursday, before it settled around US105.40¢ by the close that day.
The dollar's reaction to the announcement came in the form of a cliche. Currency strategists like to say sometimes, to explain why currencies weaken or strengthen after a central bank loosens monetary policy, that traders like to "buy the rumour, sell the fact".
In the case of the Australian dollar-US dollar cross this week, that saw traders buying a bucketful of Australian dollars in the lead-up to an anticipated event - the US Fed's quantitative easing announcement - and selling them once the announcement was made.
The point of such a move is to make a little bit of profit, and that practice explains why Australia's dollar jumped to a three-month high in the early hours of Thursday morning, before slipping back.
"It happens often enough that you can't ignore it," Westpac currency strategist Sean Callow said.
"It's one of the first lessons you learn in markets: why didn't the dollar go down when the RBA cut rates? You then start to get into the realm of anticipation."
Mr Callow said that with a currency as heavily traded as the Australian dollar - the fifth-most-traded currency in the world - some traders will use it to try to see if they can make some money by reading the mind of the market.
When the US Fed intimated it was going to print more money, and thus devalue its currency, ahead of that some traders started buying Australian dollars, betting that if there was to be a broad-based sell-off of US dollars then the Australian currency would probably move as much as any currency.
On Friday, Caltex Australia flagged a return to profitability in calendar 2012, thanks to stronger sales and better refining margins. Caltex was up 27¢, or 1.4 per cent, at $19.20.
Insurance Australia Group said it would sell ailing British assets and it expected to make a $240 million loss on the deal. IAG was down 9¢, or 1.8 per cent, at $4.72.