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Negative undertones give rise to defensive assets

15.33 AEST, Wednesday 26 September 2012

Negative undertones give rise to defensive assets

By Tim Waterer (Senior Trader, CMC Markets)

With central bank stimulus euphoria already seeming but a distant memory, the last thing traders needed to hear was a dissenting voice against the merits of QE3. Throw in a dose of renewed Spanish fears and we have all the ingredients needed for financial markets to be back in an all too familiar risk-off frame of mind.

With caution again reigning supreme, the US Dollar is once again in favour with traders who are content to forgo yield on the basis that the Greenback has far less downside compared to other more risk sensitive currencies.

The negative undertones infusing the market this week have given rise to defensive assets, particularly as there seems to be a vacuum of any positivity after the latest round of central bank easing announcements.

The Aussie Dollar has had a tough trot this week with traders shunning the higher yielding currencies given the noticeable drop in sentiment regarding global growth. Traders are also clearly anticipating an RBA cut in the latter part of the year in response to troubles in the major economies of the US, Europe and China. Today we have seen the AUD slide further against the USD with equity markets across Asia in no mood for buying. With the major bourses in the red, demand for higher risk currencies like the AUD has dried up somewhat and the Aussie will likely remain under pressure until such time as we get a good news story from somewhere around the globe to boost confidence.

It was another far from spectacular performance from the Australian sharemarket, with mining stocks again being the achilles heel of the broader market as negativity over global growth prospects persist. Traders appear to be lacking compelling reasons to buy in the current environment and this is causing the drift lower on the ASX200 index this week.
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