Strength in global equities set the scene overnight as investors grew encouraged by yesterday’s positive Alcoa earnings. The subsequent release of Intel’s best quarter of earnings ever, gave credence to the surge in sentiment. The demand of the greenback that we saw yesterday was nowhere to be seen overnight with the dollar index posting some significant south bound movements to fall to 2 months lows. Gold become a beneficiary of dollar weakness with the spot price rising to highs of US$1218 a troy ounce.
True to form the Aussie dollar traded in tandem to US equities which saw the S&P 500 index surge 1.54 percent. The local unit rose to highs of 88.4 US cents and remains well bid around these highs.
European markets were able to overlook the latest downgrade of Portugal by ratings agency Moody’s which cut the country’s debt rating by two notches to A1. This proved to be a small hiccup in the resumption of strength for the Euro which surged to fresh 9 week highs of US$1.2740 – At the time of writing the Euro is buying US$1.2720. Well supported debt auctions in Greece inspired investor confidence in the nation’s ability to climb out its financial hole – the well-attended auction enabled Greece to raise around EUR1.6 Billion.
UK Consumer price index rose at an annual rate of 3.2 percent against a previous 3.4 percent. The on-target inflation reading saw sterling pare earlier losses rising to highs just shy of US$1.52. Inflationary pressures amidst a rocky recovery remain the primary concerns for UK officials. Inflation remains above the BoE target due to the restoration of the Value added tax (VAT), higher oil prices and the subsequent weakness from sterling.
From here earnings season from the states will ultimately decide where the balance of risk falls and further upward momentum from the Aussie dollar will be reliant on a positive print, given the close correlation with US equities. The release of key Chinese growth data this week will also be a major market mover for the local unit. Chinese GDP to be released on Thursday is expected to show the Chinese economic growth slowed to 10.5 percent from a previous 11.9 percent. Any significant deviation above estimates will likely induce another round of speculation China will either take further steps to cool the economy which is likely to weigh on commodity markets.
Economic news today includes the Westpac-Melbourne Institute survey of consumer confidence for July and Treasurer and Deputy Prime Minister Wayne Swan is poised to release revised economic forecast which could prove to be a market mover for the local unit.