As last week ended, the US dollar was sweeping all before it. The Aussie had it lowest weekly close in more than 6 months. The Pound showed traders that “buy the rumour, sell the fact” still works as a trading strategy with a big reversal off 1.65 after the No vote triumphed and USDJPY was firmly above 108.
Other assets denominated in US dollar were also pressured with gold finishing at $1,217 and crude at $92.45 a barrel. (Have you noticed the low petrol prices in Australia, by the way? Good for consumers.)
The US dollar strength is the big shift in markets that macro-traders – and RBA Governor Stevens – have been expecting. It’s underway, at least in FX and commodity markets. Stocks are unperturbed, with Alibaba hitting the market with the largest IPO in history and making founder Jack Ma worth close to $20 billion.
Some traders see the new all-time highs in the Dow and S&P last week, when combined with the Alibaba IPO, as evidence of a market top. Time will tell, but it means that even though the we have a light data calendar locally and globally this week, there is still plenty to talk about.
After the RBA signalled growing disquiet about the rise in house prices in the minutes to this month’s Board meeting, and amid signs of a continuing boom in Sydney, this week’s Financial Stability Review to be released on Wednesday looms as a big event risk for Australian markets.
Could they hint at so called macro-prudential limits, will they be more aggressive in the chatter about property prices and might they try to talk the dollar down? The AFR reported yesterday that the RBA was actively considering lending limits, similar to what has been applied in New Zealand, to take some of the speculation out of the housing market. Australian markets and local traders will be waiting.
If the Financial Stability Review is not enough, Governor Stevens is talking on Thursday.
On the political front, both the House of Reps and the Senate will be sitting so we expect to hear a lot more about the Government’s plans in Iraq and also discussion about the domestic terrorism threat after last week’s raids in NSW and Queensland. We’ll likely hear a lot from the Treasurer about this weekend’s G20 Finance Ministers meeting in Cairns as well.
The other big political talking point of the week will be Julia Gillard’s interview with Ray Martin which will air on Channel Nine on Tuesday night. She recounts some details of the night she toppled Kevin Rudd, and also argues that if Rudd hadn’t continued to destabilise her as he did, she could have out-campaigned Tony Abbott.
Globally, it is second tier data week but the third read of US Q2 GDP will he released on Friday night which should highlight once again the current sweet spot for US growth relative to the rest of the world and reinforce the US dollar’s ascendancy. Durable goods orders in the US is the other key release globally.
It’s finals time in the AFL, and while it may not be a big week for local markets on the data front there will be plenty for traders to focus on with the Grand Final between the Swans and the Hawks to talk about, and also for those who follow the NRL with only 4 teams left. The Bunnies play the Roosters on Friday before my Bulldogs trounce the Panthers on Saturday night.
Go Dogs. Go Swans.
Until then here is Westpac’s ever-excellent weekly calender of all the key events.