Traders seek refuge in Greenback

15.16 AEST, Monday 9 July 2012

Traders seek refuge in Greenback

By Tim Waterer (Senior Trader, CMC Markets)

The Non-farm payrolls result added a further shade of ambiguity to the state of play in the US. The 80k jobs added was neither good enough to allay fears of a stalling economy, nor was it bad enough to give the FOMC cause to unleash QE3 yet.

So given the predicament of a stalling US economy and no signs of an imminent QE3, traders opted to seek refuge in the low yielding Greenback. Meanwhile, commodity prices were left out in the cold, with oil and gold both succumbing to the rejuvenated US Dollar.

The economic data from the US just does not point towards any forthcoming demand pressures for crude oil, which is likely to see downside price risks outweigh potential for upside moves.

Traders are finding little reason to hold Euro ‘long’ positions in light of the events of the past week, which goes towards explaining the fresh lows we are seeing from the single currency. The recent rate cut from the ECB and reluctance from the FOMC to introduce QE3 has the EURUSD rate staring at a potential move below 1.22 in the short term

The AUD has given up over 1 cent in the aftermath of Friday US jobs data. The combination of sliding commodity and equity prices invariably leads to AUD weakness which is what has been on display since Friday. Today the AUD has been unable to gather any momentum given the sea of red numbers on the ASX200 and indeed across the Asian region. But while the AUD is lower against the Greenback, at least the currency can hang its hat on the fact it is still sitting pretty against the beleaguered Euro, with the AUDEUR cross rate still near all time highs.

Declines in commodity prices after Friday’s US employment report equated to Materials and Energy sector weakness on the Australian market to kick off the week. Softness in the US labour market did nothing to alleviate global slowdown fears, and this concern was reflected in the performance of the heavyweight mining stocks on the ASX200 today, with BHP and RIO both well in negative territory.

There is a raft of Chinese economic data due out this week which will set the tone for Asian bourses. The PBOC rate cut last week has traders nervous about the outlook for the Chinese economy and if the figures this week point to a pronounced slow-down we could be in for more ‘risk-off’ days like the one experienced Monday.
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