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• Global correction evident in the AUD.
• US Data holds risk to the downside.
• Rudd replaced by Gillard.

The AUD is prone to movements in risk appetite and the overnight correction in equity markets highlights just how sensitive the local currency can be. Recent gains in equity markets and relatively subdued earnings expectations have had the financial markets requiring strong growth figures, just to keep equities at the levels they were posting last week. Yesterday, it was China’s Leading Index rising a meagre 0.3 being compounded by US Consumer Confidence dropping heavily to 52.9 which saw the S&P500 lose 3.1%. With the occurrence of weak economic data from China and the shortcomings of US Consumer Confidence, this has given the equity markets some breathing space before the upcoming reporting season.

The long term growth prospects are still available to the AUDUSD pairing, with its window of opportunity still open for the AUD to post higher levels. This is evident after the Federal Reserve noted last week that it would be keeping rates exceptionally low for an “extended period”. The current risk is coming from both China and global growth prospects and yesterday we saw soft numbers in both areas. A brief look at the snapshot of economic data for the last week shows a lot of weak figures in the States and the Non-Farm Payrolls figure this Friday holds the risk of unemployment increasing there. Things are mildly better in the UK while in Australia, Housing Prices and Private Lending were firm yesterday.

Last week we saw a particularly swift political rolling with former Prime Minister Kevin Rudd brought down by the ALP. Mr Rudd had little factional support to begin with and his centralised policy making process won fewer allies. The ALP took a particularly forward looking judgement and rather than risk his style in an election year, decided to back Julia Gillard. Rudd was voted in under opinion polls not seen since Hawke, however recent polls suggested voters didn’t like the direction he was taking the country. The appointment of Gillard had a short-term positive impact on mining stocks and little impact on the AUD. If the resources sector cooks interest rates to expand to unprecedented levels, a higher mining tax may still be used to protect other sectors of the economy.