The continued fall-out from the Reserve Bank of Australia's removal of "easing bias" language continued yesterday, and pushed the ASX through key support levels, which helped propel the market downwards. Prior to yesterday's sell-off, Rivkin's Global Investment Director predicted that markets would trend lower on a break below the key level of 5,739. Looking at today's first chart, you can see that the buying support that had previously held the ASX 200 above this level, indicated by the black horizontal line. The ASX 200 broke strongly through that level yesterday and, as you can see, there is no medium-term buying support until we get close to the 5,500 level. There is speculation this morning that the Reserve Bank may do a back flip and reintroduce "easing bias"language somehow, having gauged the negative effect on the stock market, bond market (high rates) and Australian dollar (high levels). Australia's benchmark 10-year bond yield has risen from 2.69% prior to the rate cut to 2.92% now - the market clearly would have preferred no cut and the prospect of further cuts to a cut and the prospect of no further cuts.

So in a nutshell, bond and currency markets (as well as cash rate expectations) are not doing equity markets any favours right now. Markets have been hooked on the support provided by the prospect of falling rates for some time and this week's movement in interest rate expectations has come as quite a shock. But I'm not so sure RBA Governor Glenn Stevens would be comfortable responding to the market by attempting to remedy his statement from Tuesday. While we might encounter some volatility due to the markets interpretation of his statement, at the same time we know that Australia's vast sums of money invested in superannuation have been moving away from risk-free assets as the rates have come down, piling into equity markets. To continue cutting rates and exacerbate this move may be in the interests of some, but what Australia really needs is consumer confidence through economic growth - not easing monetary policy. 

In today's second chart I've plotted the US dollar index (black), the EURUSD pair (orange) and the AUDUSD pair (blue). You can see that all of these instruments are reverting back to their end-of-2014 levels, chiefly driven by changing interest rate expectations in the United States, as traders push bets of a rate rise further out. Today's last chart shows the AUDUSD remaining elevated since this week's RBA statement. My opinion is that it would be futile to fight against the influence of the US dollar right now in terms of attempting to lower the rate of the AUDUSD with monetary policy and their accompanying statements. Last night's big move lower in the US dollar meant that profit taking in long AUDUSD positions didn't manage to sell the currency back down to pre-RBA decision levels - it would probably be best to leave policy statements alone until the US dollar settles.

Anyone holding Fortescue Metals Group (FMG) yesterday will know that this miner managed to swim against yesterday's current to finish 8.5c higher for the day at $2.58. Iron ore markets lifted and closed at US$60.89 per tonne, which should see performance for this and other iron ore miners remain solid on today's open. You can see by looking at today's Global Markets matrix that iron ore prices have now recovered 29.33% for the rolling month.

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