Cards fall in favour of risk assets

15.20 AEDT, Wednesday 17 October 2012

Cards fall in favour of risk assets

By Tim Waterer (Senior Trader, CMC Markets)

The cards have fallen back in favour of risk assets following positive developments in Europe and the US, with the decreased appeal of holding safe haven US Dollars allowing for moves to the upside from the Euro, gold and oil. In particular, a dose of good news on the Spanish front was quickly latched onto by investors who are increasingly growing tired of playing the waiting game on a potential bailout request.

The Australian Dollar (AUD) experienced a return to form following events which were conducive to investment in higher yielding currencies. With stocks and commodities marching higher the AUD was a natural selection for traders wanting to position for a possible move higher in risk assets over coming weeks. Today the AUD has hit 1.03 with Asian markets following the upbeat lead of the US. With ‘feelgood’ stories circulating over both Spain and the US economy, trading inclination has been to steer away from defensive currencies today and this has seen the AUD receiving solid buying flows as a result.

Some buying conviction returned to the Australian markets following what was quite a positive narrative in relation to events in Europe and the US overnight. Key US earnings lifted Wall Street whilst mounting speculation that Spain will soon extend its hand for financial relief were welcome developments which propped up commodity prices as safe-haven demand subsided. Mining giants BHP and RIO made the best of the positive trading conditions and this was the driving force behind the ASX200 mid-week surge witnessed today.

Chinese GDP data due on Thursday looms large for the market, and whilst it has been a day of very smooth sailing for the Australian market, any new rumblings regarding Chinese growth slowing poses a threat of upsetting the applecart if the GDP print comes in on the low side. Chinese GDP is forecast to come in at 7.4% following the previous reading of 7.6%.
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