AUD flourishing as China comforts the market

15.20 AEST, Wednesday 12 September 2012

AUD flourishing as China comforts the market

By Tim Waterer (Senior Trader, CMC Markets)

With China open to more stimulus and Iron Ore prices back above US$100 the AUD has flourished in the past 24hrs, with a move back to 1.05 on the cards should a favourable German court ruling occur and if Bernanke appeases financial markets by launching QE3. The AUD added to overnight gains during Asian trading hours today, with stronger commodity prices and a general ‘feel-good’ mood of markets providing some buying momentum to currencies with higher yield.

Meanwhile the Euro is going from strength to strength, with the currency pushing higher today on reports that Spain is considering asking for assistance from the ECB. The EURUSD rate is now knocking firmly on the door of 1.29. The AUD followed the Euro higher on this to move above 1.048.

The broader market appears to be positioning for Bernanke to pull the QE3 trigger with traders not wanting to be caught on the wrong side of a push higher by the market. Whilst there is still the risk that the rug could be pulled from under financial markets if the Fed remains idle on policy, it is the scope of any quantitative easing announced which will dictate how much more upside there is for higher yielding assets. With traders awaiting a ‘yay’ or ‘nay’ from Bernanke with regards to QE3, the US Dollar continues to fall out of favour while commodities like gold and oil start to see more room to move on the high side of recent trading ranges.

After a very restrained start to the week, the ASX200 broke the shackles today with investors clearly liking what they heard from the Chinese Premier regarding potential stimulus which had a comforting effect on the Australian market. A willingness from Chinese officials to act on stimulus as needed was all that markets needed to hear, with Iron ore price rebound telling the story. The resulting rise in commodity prices translated into it being a solid day for the mining stocks, whilst the banking stocks also made the most out of the better vibe on global markets ahead of some key events. The German constitutional court ruling as well as the FOMC announcement on monetary policy are keenly awaited events and hopes are high that favourable outcomes will be achieved by both.
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