ASX underperforms US significantly, European stocks sharply lower, Aussie dollar remains supported, ASX futures down 44 points

Australia's S&P 200 behaved like a real pig yesterday, and as you can see from today's first chart the futures didn't manage to make up for lost ground last night as Wall Street outperformed our sell-off. Stocks were down by about 0.40% in the US last night and this followed a 1.85% or 110 point sell-off on Australia's ASX 200. Our index finished at 5,838 yesterday, and Rivkin Trader's ASX 200 cash index CFD closed this morning at just under 5,800. So why is the Australian stock market being punished?

The financial sector was the second-worst performer yesterday, behind healthcare. Given the weight of the banking sector in Australia's benchmark equity index, this had a significant impact on our market and the sell-off was fuelled no doubt by signs of the iron ore price reversal, which eased back from US$59.88 per tonne to US$57.13 per tonne. It seems as though some felt is was simply a good day to sell. Cash rate futures haven't moved enough to warrant a ramping up of speculation that the Reserve Bank of Australia will leave rates on hold next week. I guess it's possible that a vacuum of foreign buying has emerged due to the Australian dollar's recent run higher (this behaviour would likely reverse if the Australian dollar showed signs of 'trending' higher), as there would be some foreign investors fearful that un-hedged short-term performance would be affected if there is a reversal of recent Australian dollar strength.

Today's second chart shows the Australian dollar remaining well bid following a poor US GDP release, which came in at 0.2% annualised versus a previous print of 2.2% and expectations of 1.0%. Slower growth in the United States means that the US Federal Reserve has even less reason to rain on the economy with higher interest rates. If traders delay their expectations for a US rate rise, at the same time as expectations of a 'no change' in Australia rise, then the Australian dollar will remain attractive in the eyes of FX traders. So you can see that the AUDUSD currency pair hasn't rushed to reverse any of its recent gain form US$0.77 to US$0.80 - traders seem to be holding high conviction views that we are on the eve of a turnaround in sentiment for the US dollar.

In today's last chart I've shown an even better performer with regard to the Australian dollar, being the AUDNZD currency pair. At the beginning of this month the Aussie touched parity with the NZ dollar, but since then it has fairly dramatically reversed that move, now being 5% higher since those April lows. This morning the Reserve Bank of New Zealand decided to leave rates on hold - it seems as though New Zealand's aim to combat its rising dollar through tough talk from the reserve bank there is having an effect, with a warning that there is the potential to cut rates in the future.

It's a data-heavy day for traders interested in the Japanese yen, euro and Canadian dollar - see our economic table for more.



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: Bank of Japan policy statement at 1pm, Bank of Japan outlook 4pm, German employment at 5:55pm, Eurozone CPI at 7pm, Canadian GDP at 10:30pm, 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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