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Aussie puts on weight despite credit ratings downgrade.
• Aussie rallies, gaining support from economic data.
• US earnings & housing data positive for risk.
• Shot across the bow on Capitol Hill.
The local unit has continued to put on weight despite a vacuum in local data, posting gains today (Wednesday) to A$1.0650. Inflationary pressures have pushed the Aussie to higher levels with the Consumer Inflation Expectation (3.5%), Import Price Index (1.4%) and Export Price Index (5.2%) prompting speculation of an earlier than previously expected rate hike. Data out of China last week was also bullish with GDP (9.7%) and Industrial Production (14.8%) outstripping expectations.
In the absence of wars and natural disasters, the local unit is often left to its own devices, however US stock prices and commodity price volatility wreaked havoc on the Aussie this week. Last night there were better than expected earnings for Johnson & Johnson and Steel Dynamics, while Housing Starts were also positive for growth prompting speculation before tonight’s Existing Home Sales. The figure is expected to signal a turnaround in the fragile housing market however this week’s weak US Jobless Claims figures still throw support behind the Aussie dollar. Oil prices were also volatile after initial concerns about Nigeria’s crude prompted a rally in oil prices however this risk was pared after Saudi’s oil minister noted that the market was “oversupplied”.
The S&P 500 lost ground over the week (-.11%), largely due to a fall Monday night prompted by Standard & Poors. The ratings agency cut the US credit outlook to negative in what could be described as a shot across the bow on Capitol Hill to contain debt and deficits. The ratings agency said that “there was a material risk that US policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013”.
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