The stock market looks set for a relatively stead opening as investors assess the conflicting influences of firmer commodity prices and a stronger Australian dollar.
The fact that spot iron ore price has returned to within an ace of the $60 level will be a supportive influence for mining stocks today. However, the big jump in the Aussie dollar is a negative
While $AUD buying appears to have been triggered by $US weakness, the Aussie has outperformed gaining ground against other major currencies, especially the Yen.
Australian dollar strength is likely to be a negative today for some of the stocks that like CSL, ResMed and Amcor that have been bought in expectation of an ongoing decline in the currency.
Renewed support for the Aussie dollar appears to have been in part motivated by a view that the recent recovery in the iron ore price will see the RBA hold off another rate cut next week. However, if this rally in the $AUD continues it will itself start to tip the balance back in the other direction, creating an incentive for the RBA to cut and maintain a clear easing bias.
Last night’s US dollar weakness comes ahead of a big news session tonight that will see release of first quarter GDP data and the FOMC meeting. Soft US data in March has seen GDP expectations downgraded for the first quarter. Last night’s news of a much weaker than expected read in the Conference Board Consumer Confidence Index fed into this theme as consumers appear to be reacting negatively to a softer job market and rising gas prices.
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