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Round Up – US Data, Asian Markets & Australian Dollars

James Boston
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North American data releases yesterday raised serious questions over the strength of the US economic recovery. On the day that Janet Yellen was sworn in to replace Ben Bernanke as Chair of the US Federal Reserve, the market took the opportunity to remind us who the boss really was.

The Institute of Supply Management published it’s monthly Factory Index figure, which at 51.3, severely undershot forecasts of a number in the high 50’s.

A colder than normal winter is being cited as the primary reason for the drop in demand and production, and on the surface this is somewhat plausible. However the devil is in the detail, accompanying the Factory Index release was another figure showing that new orders have suffered their largest decline in 33 years.

The underlying message is that US economic recovery is still tenuous. Nervousness of market participants was evidenced by the sharp rise in the S&P Volatility Index (VIX) which jumped over 16% on the data release, this was the biggest one day rise since the beginning of the recovery. The S&P 500 Index itself fell a moderate 2.3% but futures show a lower opening this morning in response to a larger than expected reaction by the Asian markets overnight.

Despite intervention by the Bank of Japan (BoJ), the Nikkei 225 dropped by 4.2% yesterday on heavy volume. In the middle of a rough earnings season for Japanese corporates, the BoJ is reported to have invested up to $1.2bn in purchasing Exchange Traded Funds in an effort to stem the market correction.

The Aussie dollar was the main gainer in the midst of the global market rout. The Reserve Bank of Australia held the key lending rate steady at 2.5% yesterday, but in the accompanying statement removed all references to the potential for further easing.

The Australian Dollar rose 1.70% against the US Dollar as a combination of RBA rhetoric and a flight to safety benefited the commodity currency.

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