Green Shoots of Recovery ?
June 4, 2009
Evidence that the Global Economy is on the turn continues to emerge. Probably the most surprising development over the last couple of days was the positive 1st qtr GDP number from Australia indicating that from a technical point of view at least, the country had completely avoided recession.
This was presumed to reflect the pick up in demand for the commodities that are the staple export of the country BUT overnight data showing that Australia has in fact been running a trade deficit suggests that all is not sweetness and light down under.
The AUD accordingly gave up some of yesterday’s gains but perception is that despite the disappointing trade data, the Aussie is likely to be one of the star performers on the currency markets over the next 12-months. Comments from the RBA’s Stevens added to the positive sentiment. He stated that the Central Bank still had scope to cut rates if required but that the Bank needed to be very cautious with further easing – he also dismissed the use of QE in the current climate.
Sterling had a good morning yesterday but not such a good afternoon. The UK PMI Services data was much more upbeat than had been anticipated indicating a positive sentiment from the sector for the first time in over 1-year (April 08). Sterling rallied to a high of 1.6645 and 1.1650 before gravity took its toll. Looking at the technicals at the time, the RSI (relative strength index) had breached its upper limit and implied that Sterling was overbought, requiring a retracement back to the 1.5850 level in cable to normalise the situation.
This is not to imply that the recent bull Sterling run has finished but that a pause is on the cards. Indeed the appetite shown for the recent gilt offerings from the DMO (with overseas holdings historically being in the region of 40%) suggest continued buying of Sterling as the Government funds its ballooning deficits. It is difficult to ascertain whether today’s European and local elections in the UK will have any effect on Sterling’s value or indeed whether the calamitous decline of the Labour Government has already been built in to the currency’s worth.
The Dollar took heart on 2 counts yesterday. Firstly affirmation from several Far Eastern countries, India, Japan and Korea and then separately China, that the Dollar was still regarded as the only candidate for Global Reserve Currency status and secondly from the Ben Bernanke testimony, during which he painted a fairly bullish picture of the US economy.
The currency’s strength was tempered somewhat by a statement from the Malaysian PM suggesting that his country and China were considering ending the use of the Dollar as a trading medium between the 2 countries. This strengthened the Euro a tad as people saw the Euro as a possible replacement
Today is ‘interest rate decision day’ – but far more importantly, ‘will there be an announcement of any changes to the current QE measures day?’. Expect more from the BoE than from either the ECB or the Bank of Canada. No change is expected in interest rates from any of the 3 Central Banks today.
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