Global equity markets rally, Aussie dollar suffers from weaker metals and rate cut probability, ASX futures up 49 points

Equity markets seemed to home in on US Fed Chair Janet Yellen's comment that a rate hike "may well be warranted later this year." It's very weak language and would indicate that the hike has been pushed further out, but the market's response was quite odd. While equities rallied--if indeed this was the catalyst--the US dollar strengthened, which assisted the Australian dollar in selling off quite sharply. The AUDUSD currency pair (today's first chart, in black) has fallen disproportionately when compared with US dollar strength (orange), and this is because of the current weakness in commodity prices. Iron ore, as you'll see in today's Global Markets matrix, is now almost 16% lower on a rolling monthly basis and this spells a bit of trouble as we come closer to the Australian Federal Budget, which will be released in May. In the last 10 trading days, the market has gone from pricing in a 49% chance of a cut at the next RBA board meeting on Tuesday next week to a 68% chance of a cut to 2.00%.

So the Australian dollar is now buying US$0.7652 - this is close to the bottom of its recent range and certainly counter-intuitive to what might normally happen when global equity markets rally, so the prospects of our rate cut and the impact of commodity prices are certainly proving prohibitive for buyers at present.

The ASX 200 remains range-bound between 5,750-0 and 6,000 and was last night given a 49 point lead to kick off the day today. I suspect that the prospect of a weakening AUDUSD trend might turn away foreign buyers and could stop our market from taking full advantage of this positive lead; however, at some point we might see some pre-emptive buying come into the market on the premise that Australia will get a rate cut next week. 

Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements:German retail sales out at 5pm, German employment report at 6:55pm, Eurozone CPI at 8pm, Canadian GDP at 11:30pm, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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