QE3 remains on the periphery

15.11 AEST, Wednesday 18 July 2012

QE3 remains on the periphery

By Tim Waterer (Senior Trader, CMC Markets)

Despite the non-committal nature of Bernanke’s speech, it seems traders on Wall Street decided to hear what they wanted to hear regarding the likelihood of further stimulus if the positive reaction of risk assets is anything to go by. Perhaps it is the case that traders are so convinced that the US employment picture will remain bleak that Bernanke will have his hand forced over coming months to pull the QE3 trigger.

With the prospect of QE3 still on the periphery, any interim moves to the upside from the Greenback may be capped with traders knowing that the introduction of QE3 would instantly douse any US Dollar strength. In essence we could see an artificial ceiling on US Dollar gains over coming months until such time as US data improves enough to eliminate further stimulus chances.

The Australian Dollar remains well supported in the wake of Tuesdays RBA minutes which indicated that no imminent rate cuts are on the horizon. A softer US Dollar as well as a decent performance from equity markets this week points towards a rise in trading confidence, and these conditions will invariably suit the higher yielding AUD.

The extent of the AUD’s stay above 1.03 will depend on how long the market can go without losing patience regarding the lack of new stimulus from central banks.

The Australian market understandably traded in quite circumspect fashion following Bernanke’s melancholy assessment of the state of play in the US economy. While we may have been given a positive lead from Wall Street, in reality there was very little to rejoice about after hearing the Fed Chairman speak and this mood was reflective of the ASX200 performance today.

Financial stocks seemed to attract what buyers there were on our market today. However the resource stocks were baulked at as traders try to form a picture of how commodities demand will shape up later in the year against what is predicted to be a weak global backdrop.

BHP could not seem to take a trick today, with the stock out of favour despite the strong quarterly production numbers. If the cards had fallen a little differently regarding the timing, with either Bernanke hinting more strongly at QE3 or just a better overall sentiment, we would likely have seen the stock rise and rise sharply based on the numbers.
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