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Aussie Firms on Election Outcome - Rally Unjustified Given Economic Pitfalls

Aussie Firms on Election Outcome - Rally Unjustified Given Economic Pitfalls

Christopher Vecchio, CFA, Senior Strategist

Talking Points

- Syrian tensions remain between Russia and US, but no strike for now.

- Australian Dollar jumps on election outcome; could be short-lived.

- US Dollar trades broadly lower after August NFPs disappoint.

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(vs USD)








Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.12% (-0.20%prior 5-days)


The Dow Jones FXCM Dollar Index is trading back near its post-NFPs release low from Friday as risk-appetite has firmed across the globe – at least in FX markets. Overnight, 2Q’13 GDP figures showed that the Japanese economy grew by +3.8% annualized, a slight tick down from the +4.1% figure in the 1Q’13 but well-above the prior 2Q’13 estimate of +2.6%.

While the stronger growth figures have stoked a turnaround in the Japanese Yen from its overnight lows – stronger growth reduces the need for more easing from the Bank of Japan – the funding and safe haven currency remains a bottom performer after news broke over the weekend that Tokyo would host the 2020 Olympics. Mainly, this has to do with the Yen’s inverse relationship with the Nikkei 225, which closed up by +2.48% on Monday.

Also out of the Eastern Hemisphere this weekend was news that Tony Abbott of the Liberal Party (right-leaning) ousted Kevin Rudd of the Labor Party (left-leaning) as Prime Minister of Australia. The Australian Dollar has emerged as a top performer in the wake of the results as Mr. Abbott promised to revitalize the country’s mining sector, and generally boost what has been a sagging economy over the past two years.

Mr. Abbott’s desires for economic grandeur may be misguided. Indeed, with the recent slowdown in China and emerging market turmoil, there is mounting evidence that the global commodity supercycle may be cooling; neither Mr. Abbott nor Mr. Rudd could do anything about that. Even if carbon taxes and mining taxes are dismissed, the core issue remains: weak revenue streams as demand for base metals erodes – Australia’s top export being iron ore.

Accordingly, what this means is that we should expect new policies to struggle; and the Reserve Bank of Australia will likely need to keep its policy looser than previously anticipated as the Australian government undergoes its own version of fiscal consolidation. Incoming data remains important; but we wouldn’t be surprised if the RBA front-runs any fiscal drag with at least one more 25-bps rate cut in 2013.

AUDJPY 5-minute Chart: September 9, 2013 Intraday

Aussie_Firms_on_Election_Outcome_-_Rally_Unjustified_Given_Economic_Pitfalls_body_x0000_i1027.png, Aussie Firms on Election Outcome - Rally Unjustified Given Economic Pitfalls

Read more: FX Headlines: Sparse European Data Allows EUR, GBP to Rebound after NFPs


Aussie_Firms_on_Election_Outcome_-_Rally_Unjustified_Given_Economic_Pitfalls_body_Picture_1.png, Aussie Firms on Election Outcome - Rally Unjustified Given Economic Pitfalls

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--- Written by Christopher Vecchio, Currency Analyst

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