Dovish central bank tone comes as music to the ears

15.19 AEST, Friday 5 July 2013

Dovish central bank tone comes as music to the ears of investors

By Tim Waterer (Senior Trader, CMC Markets)

Central bank comments from Europe which confirmed a protracted period of low interest rates came as music to the ears of investors, which seemingly released the pressure valve across European bourses. Investors took comfort from the fact that the BOE and ECB are in no hurry to tighten policy anytime soon which should give the economies of Europe additional breathing room to improve the anaemic growth rates.

Asian markets today followed suit, albeit with smaller gains in percentage terms but nonetheless there was a spring in the step of traders even ahead of the key event risk which looms in the form of US Non-farm Payrolls. With easy monetary policy across Europe apparently here to stay, this should soften any blow that a particularly high or low Non-farm Payrolls result might otherwise deliver. Any number approaching 200k on the US jobs result Friday will likely put the possibility of September tapering back in the frame, while conversely a low print would further stoke growth concerns. As such a happy medium of somewhere in the 160k-170k range might suffice in terms of sending markets into the weekend on a positive note.

Australian equities posted sturdy gains to end what has been a week of high turbulence for the local market. Traders were quick to latch onto the overnight European market positivity which translated into broad based gains on the ASX today. Financial, Industrial and Material stocks were among the better performers however traders were no doubt casting one eye towards tonight’s US jobs report which could impact risk appetite heading into next week.

We witnessed a fairly unspectacular trading range from the Aussie Dollar today ahead of the key US jobs data. The AUDUSD rate held mostly in a trading band no greater than one third of a US cent today. Traders were opting to ‘sit tight’ waiting to see how the latest US unemployment rate fits in with the overall QE narrative coming from the Federal Reserve. Whatever the outcome of the Non-farm Payrolls data, moves by the AUD will be reactionary to how traders perceive the greenback in the wake of the numbers this evening.

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