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• US data finds a silver lining yet underwhelms investors.
• Governor Stevens being “comfortable” is AUD positive.
• Local currency resilient, despite overnight moves.

At last, there’s been a run of positive data from the US and although often below market expectations and amidst a weaker equity market, it provides for a slightly stronger position for US optimists. It is by no means a resounding endorsement of a recovery but at the moment even subtle suggestions of a floor being found is positive for risk appetite amidst concerns their economy is faltering. Equity markets were however, on the edge of the precipice this time last week at the prospect that the Federal Reserve’s intermittent economic CPR was less than convincing and Wednesday night’s trade deficit of US49.9B saw US equities free-fall close to 3%. Tuesday night saw an effective stop-gap by equity markets which recovered more than a percent on the back of the prospect of a possible takeover by BHP on fertiliser company Potash Corp. There was also positive news via US earrings season with Wal-Mart, Home Depot and Carlsberg all recording strong earnings figures.

Locally, the governor of the RBA has been cool, calm and collected amidst commentary that the local economy had missed a gear over the last month. The RBA Meeting’s Minutes released yesterday included a comment that the RBA “felt comfortable” regarding the current level of borrowing costs which reassured markets that it’s unlikely the RBA will need to loosen the country’s monetary policy belt to stimulate growth. In what has become a growing trend, a lack of dovish commentary from the RBA is interpreted as positive for the local currency and despite noting that there was “more uncertainty over the global outlook than there had been a year earlier,” and “a greater degree of caution” regarding consumer spending, he did not suggest a weakening in growth for the local economy. This is in stark contrast with say Mervyn King, the governor of the Bank of England who thrives on undermining the GBP to ensure its recovery is not premature.

Amidst some heavy volatility for the AUD this week, the local currency has been performing well off the back of strong local moves, only to be sold short during the overnight sessions. During local trading hours the Aussie has been impressive with the local equity market posting strong gains, only to open the next day down sharply courtesy of overseas equity markets. Debt raisings have also come think and fast this month to provide additional support for the local currency with HSBC, Barclays and BNP Paribas SA all doing billion dollar debt raising denominated in Australian dollars. Today was the first day that the local currency lost ground during the local session due to some lacklustre economic data which indicated a minor softening in wages growth and a lack of direction for the Westpac Leading Index. On the election front, short term economic credentials are on the minds of voters, while the reform of key areas such as education and health provide an opportunity to improve the allocation of resources. Generally speaking, its business as usual for the local economy while significant question marks hang over the US economy and increasingly, their equity markets.

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