Rebound performance by the AUD

15.18 AEDT, Wednesday 24 October 2012

Rebound performance by the AUD

By Tim Waterer (Senior Trader, CMC Markets)

The Australian Dollar (AUD) enjoyed a nice rebound performance today after it took a bruising during the New York session. The rise today came in two stages, with the hot CPI reading and then the jump in Chinese Manufacturing data contributing to send the AUD back above the 1.03 level. However with US companies continuing to disappoint with earnings, a further correction in US equity performance will have traders leery of higher yielding currencies like the AUD with global growth questions lingering in light of the sub-par US data.

If the RBA was looking for a reason to pause on rates, they got one today in the form of the CPI data. Had we witnessed a CPI print on the low side then it would have virtually sealed the deal for a rate reduction in November. However the 1.4% CPI result for the quarter diminishes the scope for further easing with the RBA needing to be more mindful of balancing the inflation part of the equation. The chances of the RBA easing rates in November is now starting to look more like an even-money bet.

Heavy selling looked to be the order of the day, particularly early in the piece across Asian markets, however a rise in Chinese Manufacturing data provided some respite and gave stock indices reason to claw back some ground off the lows. On the Australian market, predictably it was the Energy and Materials sectors which fared worst in reaction to the overnight slide in commodity prices. The question marks posed by sluggish global growth on future resource demand had our large miners looking vulnerable today, however the encouraging Chinese data did stem the selling tide and limited downside moves.

The rise in the HSBC Flash Manufacturing PMI to 49.1 was undoubtedly a welcome relief however this result on its own is not enough to offset the tenuous outlook for growth foreshadowed by Corporate America in recent days. US Corporate earnings have provided a reality check to traders and the slide in confidence can be witnessed in the price activity of commodities such as crude oil which has spiralled south. Manufacturing PMI data due out of Europe this evening could add to the woe if it comes up short, in which case the defensive mindset of the market could be on display for a few more days yet.

ends

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