Originally published by CMC Markets
In keeping with the recent pattern of volatility, Friday’s sharp sell-off in the S&P/ASX 200 has been followed by a couple of higher opening sessions. However, this morning’s tepid rally leaves the index uncomfortably close to Friday’s low at 5693. Any move below that over the next couple of days could herald another nervous test of support around 5650.
Two key tests are looming for the ASX 200. The first is the local reporting season. While Rio Tinto (AX:RIO) is due to report tomorrow the real test will not begin until next week as more large companies, including Commonwealth Bank Of Australia (AX:CBA) release their profit reports.
A second key issue for ASX 200 is that of how far and how long for the current commodity rally. The fact that the Australian dollar only held its ground against a weaker US dollar last night suggests that FX markets are beginning to view the commodity rally as entering a riskier range.
The Australian dollar is also waiting on today’s RBA meeting for potential direction. While little is expected to change, one potential variable could be more explicit currency “jawboning” by the RBA
US dollar weakness continues as a key feature of the current market landscape. The extent of the decline in the greenback now makes it difficult to avoid the conclusion that it’s at least in part motivated by a perception of mounting political risk in the US.