Australian market resting on its laurels to end the week

15.19 AEST, Friday 20 July 2012

Australian market resting on its laurels to end the week

By Tim Waterer (Senior Trader, CMC Markets)

Events this week have pointed towards an extended preservation of the AUD’s yield advantage over the major currencies, which has allowed the currency to make good progress against both the USD and the Euro. With the RBA keen to sit tight on interest rates, QE3 waiting in the wings for the Federal Reserve and equity markets and indeed general trading confidence on the rise this week, the AUD has arguably been this week’s MVP in the currency market with traders going in search of higher yield.

Today, the AUDUSD rate has eased from the overnight highs as Asian stock markets have been unable to maintain the buying momentum. Looking towards next week, if US earnings season continues to hit the mark and commodities like oil continue to ascend the AUDUSD is conceivably looking at 1.05 sooner rather than later. Much will depend on how long we can go without European debt throwing a new spanner in the works, an event which would sap the market of confidence and see safe haven buying of the Greenback pick up.

Middle East tensions now mean that supply concerns are entering the crude oil equation which is creating upward price pressure. With the added element of potential QE3 keeping a lid on the US Dollar, it would appear that the recent rally in oil still has room to move on the upside with a return to US$100 per barrel now a realistic proposition.

Following Thursday’s bumper 2% gain on the index, the Australian market seemed happy to rest on its laurels to end the week. The ASX200 was just meandering along much of the day and never ventured too far from the 4200 level, with moves higher by the resource stocks being offset by moderate weakness in the broader market.

Resource stocks came home with a wet sail to end the week, with the likes of BHP eventually getting some traction from the strong quarterly production figures witnessed in recent days But overall it seemed the market was content to be in consolidation mode after the recent shift higher. After Thursdays 2% daily gain, our market can be forgiven for just ambling to the close on Friday.

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