Scoreboard: Almighty dollar

A rush to safety reversed, while the Australian dollar's spike will boost investor confidence.

Safe-haven flows unwound a little last night. Money flowed back into some of the emerging market currencies and stocks gained some. This happened mostly on Wall Street (helped along by some decent earnings reports) as European markets were a little more mixed. For domestic investors I think the key thing to note this morning is the Australian dollar back up at 0.8936 (41 at the high). That’s almost 2 cents higher than where we were yesterday morning and from yesterday’s close, the unit is up another 50 pips.

This is the Reserve Bank’s decision yesterday, obviously. I had some misgivings as to whether the bank would actually adopt a neutral stance as all the economic data suggests it should, but it did, noting that a period of rates stability was now likely. The Australian dollar shot up as a result.  This is great news for the economy by the way. With the Reserve Bank out of action for a while, investors here and abroad can focus on our country’s positive attributes - confidence will lift further. The correlation between a strong economy, strong equity market and a high dollar is well established and there is no amount of PR that manufacturing lobbyists can spew out to change that. Over to the price action though.

Forex moves outside of the Aussie weren’t quite as interesting. For the session overall, the US dollar index was little changed, which summarises most of the major rates. The euro traded within a 40-pip range and is little changed as I write at 1.3517. Japanese yen is than at 101.6, from 100.96.

Wall Street found a decent bid overnight, a mild correction from some decent selling recently. With about an hour left to trade, the S&P500 was up 0.9 per cent (1756), while the Dow is currently 89 points higher. The Nasdaq is outperforming both those indexes with a 1 per cent gain at this stage (4036). The European session was more mixed with the Dax down 0.6 per cent, while the CaC rose 0.2 per cent and the FTSE100 was off 0.3 per cent.

Rates have corrected a little, and the key US Treasury notes sold off last night. The US 10-year yield rose 4bps or so to 2.62 per cent. The 5-year was up 1-2bps at 1.47 per cent and the 2-year is at 0.31 per cent.

Commodities were mixed. Crude fell on Brent – and is currently off 0.5 per cent ($105.64), while WTI was up a bit (0.6 per cent) to $97.2. In the metals space, gold was down $6.6 ($1253), silver was up smalls 0.1 per cent while copper rose 0.3 per cent.

Elsewhere it was pretty quiet. The major US data was factory orders and these fell 1.5 per cent in December after a 1.5 per cent rise the month prior. We also saw a regional manufacturing survey - for New York - which rose to 64.4 from 63.8. Finally, a survey of economic optimism showed a modest decline to 44.9 from 45.2.

In markets today, the SPI suggests our market will be steady. Data wise there is nothing of note for Australia although over in New Zealand we see the employment statistics. Tonight, the key data out of Europe includes retail sales, although we also see the final estimates of the European PMIs. US data includes the non-manufacturing PMI, the ADP employment report and two Fed speakers - Plosser (voter) and Lockhart (non-voter).

Have a great day…

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