US markets put in a decent rally heading into the two-day Fed meeting, ASX futures up 56 points

A small miss in US Advance Retail Sales last night (0.2% vs. 0.3% expected) wasn't enough to weaken buying in the US stock market. Industrial and manufacturing production also came in weaker than expected, but given market volatility in August all of these figures might be up for revision anyway. You can see in today's first chart that the ASX 200 SPI futures managed to shake off the blues after a bearish close on our day market yesterday - this gets us back roughly where we started yesterday morning and it is encouraging to see buyer in the US take risk ahead of the Friday morning (Sydney time) Federal Reserve interest rate announcement.

In today's second chart I've plotted the Aussie dollar's daily movements, which are threatening to break higher from a trend channel that the AUDUSD has been in since mid May this year. The move higher has been relatively sharp, so we'd need to see some convincing buying behaviour emerge in global markets over the next couple of sessions to sustain the move. Previous to the last two sessions, the move higher in the Aussie from last week was driven by US dollar weakness. US Fed Funds Futures, however, have edged higher in the last couple of sessions, which has driven the US dollar index a touch higher (see last chart). Irrespective of this--a move higher in the US dollar index will generally drive the Aussie lower--the AUDUSD currency pair has held strong over the last two sessions, an effect that is likely tied to what has been going on in local politics.

It is important to note that US cash rate futures are only pricing in a 25% chance that the Federal Reserve will raise rates this Friday morning. So if they actually do raise rates, the market is really going to feel it and the Aussie dollar will no doubt nose-dive back down through the 70c level. How equity markets react, however, is still anyone's guess.


Source: Rivkin, Saxo Bank

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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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