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FX Day Trading - 23 August 2010
Australian Dollar on hold after election result
Canadian inflation lower than expected
Buba boss wants ECB stimulus to continue
A survey by Reader's Digest has discovered that 75% of Brits don't know who wrote Elgar's 'Pomp and Circumstance' and more than two thirds are unaware that Tchaikovsky composed the '1812 Overture'.
That isn't such a big deal: most are probably equally unaware of Irving Berlin's hand in 'White Christmas', or that 'Agadoo' was the result of a collaboration between Delancray, Simille and Bernheim. But it gets much worse. As the Daily Telegraph puts it; 'Many of us cannot even distinguish classical composers from Italian cheese.'
That implies both are an acquired taste. Likewise for Australian politics. Organising a palace coup and immediately calling a general election would not normally be a recipe for political success.
If that coup unseated the chap who had led his country through a non-recession and a non-banking-crisis the strategy would be even more questionable. But hey, convention is for monarchists. Prime Minister Sheila Gillard decided to go for it and, in so doing, has ended up, probably ended up the results are not yet complete, without even the largest number of seats after Saturday's compulsory vote.
What will a coalition government, and a dodgy coalition that relies on independents for a majority in the lower house, mean for the Australian Dollar?
What it initially meant was bad news. The Australian currency opened this morning a cent lower against the US Dollar, two cents lower against the Pound and a cent down against the New Zealand Dollar.
Since then, though, it has recovered 100% of the lost ground. Investors see some virtue in the result. For starters, if it does not spell the end of Kevin Rudd's plan to hit mining companies, BHP and RTZ, with a punitive supertax it will surely result in a much-watered-down tax. But it will mean political uncertainty, never helpful to a currency.
The other question is how it will affect Australians' attitudes and, more important, their confidence. Specifically, will there be any effect on the residential property market? Just as Australia dodged everyone else's recession and banking crisis, so it has continued to dodge everyone else's house price slump.
Prices have doubled in a handful of years and, according to Statistics Australia, are still going up at a rate of nearly 20% a year. Whilst the Reserve Bank of Australia sees no risk of a bursting bubble its view is not universally accepted.
Analyst Gerard Minack at investment bank Morgan Stanley said in a research paper last week that house prices are 40% above fair value. Granted, he said two years ago that prices would fall by 30% between then and now: He was wrong then but is he still wrong?
We know from bitter experience that house prices are strongly linked to currency values and that confidence is a fragile flower when things start to go wrong. Is the Australian election result a sign that things are about to go wrong? It may turn out not to be but in the meantime it is likely to weigh on the Australian currency, despite its apparently easy recovery this morning.
Anticipation of the Australian election, the result and its subsequent dissection have overshadowed the FX spread betting market since Friday morning.
The only ecostats to have come out since then were slightly lower than expected Canadian inflation figures; core inflation fell from 1.7% to 1.6% instead of going up.
Sterling, the US Dollar, the Japanese Yen, the New Zealand Dollar, the South African Rand and, yes, the Australian Dollar are all unchanged against each other between then and now.
The Canadian Dollar is softer after the inflation figures and the Euro is down after Bunde Axel Weber said European Central Bank stimulus should continue into next year. As head of the Deutsche Bundesbank and favourite to replace Jean-Claude Trichet when he retires from the ECB, Herr Weber's opinion carries weight with investors.
There is little on today's agenda to challenge the analysts or the market, just Eurozone provisional purchasing managers' indices and consumer confidence.
That leaves everybody with plenty of time to second-guess the outcome of Ms Gillard's horse-trading and to third-guess what that outcome might mean to the Australian Dollar. It is hard to imagine under what circumstances it would turn out to be positive.
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'FX Day Trading 23 Aug 2010', Article by Moneycorp, last update: 23-Aug-10
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