In a choppy session, equity markets in the US on Friday managed to squeeze out mild gains. The DOW and S&P rose .16 and .13 percent respectively. Although the events of Europe continue to play a part in market direction, we are seeing this plague the markets to a lesser extent. The Aussie dollar’s resumption of strength seen in previous off shore sessions continued on with the local unit rising back above 87 US cents to finish up near day highs of 87.2 US cents. This morning the Aussie has maintained the momentum on the news China intends to adopt a more flexible approach to the Yuan. At the time of writing the Aussie is buying 88 US cents.
The Euro also remained buoyant cracking the US$1.24 levels before easing to close the week at US$1.2386. After a less than convincing month of May, investor confidence has crept back in the market place. We’re at a key juncture here, there’s no question the events of Europe will continue to raise their ugly head from time to time, and recent events have left scars on investors - but the trajectory at this point appears to be turning to the north. At the time of writing the Euro is buying US$1.2430 to represent a 0.35 percent gain on the day.
The stand out performer continued to be Gold, with rose to all-time highs of US$1,263 a troy ounce through the session. The latest burst of energy from gold can be attributed to a variety of reasons – recent times has seen gold demonstrate a chameleon-like price action – not necessarily dictated by tough times and the greenback.
The big news over the weekend came from China, who signaled intent to adopt a more flexible trading range for the Chinese Yuan. China’s central bank has ruled out a “large-scale” move but appears to be in the form of a “managed float” to adopt a more flexible approach to currency rate setting. This is all about a push for domestic demand, the advantages are apparent with the cost of US$ denominated products will reduce fuel cost for airlines with the cost associated with importing goods less and help to dampen inflationary pressures. The timing couldn’t be better considering the G20 reconvenes later in the week.
For now, this appears to be enough for global investors who are jittery the China appreciation debate with the US will erupt in trade sanctions causing a tit-for-tat battle of the heavyweights. In the short term this proves to be good for the relationship of China’s major trading partners and excellent for China’s ‘lone wolf’ reputation as the move demonstrates China can mix it up with the US and cooperate with trading partners.