Strong US Data Lifted Commodities but Pressured the Dollar

In the US, ISM manufacturing soared to 58.4 in January (consensus: 55.6) from 54.9 a month ago. This is the strongest reading since August 2004 and indicated manufacturing activities in the country is expanding at a fast pace. Improvement was broad-based in the report. For instance, new orders rose to 65.9 from 64.8 in December while production surged to 66.2 from 59.7 in the prior month. Employment also improved to 53.3 from 50.2. This signals we may see an encouraging employment report Friday.

However, strong economic data did not help the dollar to go higher. Instead, it declined due to rise in risk appetite together with worries about fiscal deficit. The White House's spending plan aims at job creation and extends stimulus measures to a total of $200B. This year's budget deficit will reach a record of $1.6 trillion before falling to $1.3 trillion in 2011. Last year, the deficit was $1.4 trillion.

The dollar plunged against major currencies yesterday and the dollar index fell for the first time in 5 days to 79.24.

The benchmark contract for gold rebounded +2% to 1105 as USD weakened. Precious metals with heavier industrial exposures rallied even higher. Silver soared +2.9% to 16.66 as strength in the manufacturing sector should probably boost silver consumption. PGMs surged with platinum and palladium gaining +2.2% and +3.9% respectively.

Commodities pull back in Asian session today as RBA's decision to keep interest rates on hold triggers dumping in the Aussie. Currencies and commodities follow suits and plunge.

The RBA surprisingly kept its policy rate unchanged at 3.75% and signaled rates might stay at current in coming months so as to gauge the impact of economic recovery. The RBA was the first central bank to hike interest rates 3 times last year as Australia's economy, to a large extent driven by exports to China, turned out to be more resilient than its counterparts in undergoing the crisis.