Stocks, Dollar, Aussie All Rise
The Australian dollar gained against all its major peers following the latest meeting of the Reserve Bank of Australia.
Tuesday, October 6, 2015 - 00:00
The central bank decided to leave the Australian cash rate unchanged at 2.0%, as was widely expected, but it was the tone of the accompanying statement that boosted the Aussie dollar so much, retaining much of the language from the previous statement that communicated comfort with the strength of the currency, as opposed to prior terminology that had described depreciation as both likely and necessary. The statement suggested that moderate expansion of the Australian economy has continued despite softer conditions in China and falls in key commodity prices. AUD/USD climbed 0.42% to 0.7112, while AUD/GBP rose 0.23% to 0.4688.
The US dollar advanced moderately against the Loonie after data showed the trade gaps widening for both the US and Canada, and by an unexpectedly large degree for the latter. The US international trade gap was $48.3 billion in August, widening substantially from July's $41.8 billion, as exports fell sharply as a consequence of weaker foreign demand and the strength of the dollar. Imports rose, particularly from China where the bilateral gap increased to $35.0 billion from £31.6 billion, partly driven by a huge jump in cell phone imports. The Canadian merchandise trade balance also widened in August, the deficit increasing to C$ 2.53 billion, while July's trade shortfall was revised to C$ 0.82 billion from an originally-reported C$ 0.59 billion. A gap of just C$ 0.7 billion had been expected. Canada's bilateral surplus with the US slimmed to C$2.88 billion from C$3.66 billion in the month prior, as sales to the US shrank faster than imports. The overall decline in exports was mainly driven by lower energy prices, and volume-wise the export performance was not bad. July was a fair month for the Canadian economy, but this latest report suggests third-quarter GDP growth may be on the disappointing side. USD/CAD was up 0.3% at 1.3125 shortly after the data was released.
The stock market performed strongly on Monday, making it back-to-back sessions of substantial gains after Friday's big upward move, but the momentum seems to have dissipated judging by Tuesday's tepid opening. Shortly after the opening bell on Wall Street, the Dow Jones was up by just 11 points or 0.07% at 16,787, while the broader stock market gauge of the S&P 500 Index dropped back 0.06% to 1985.8.
An element of caution is understandable, as we stand at the cusp of a start of a new earnings season and there are reasons to be concerned over certain key segments of the market. The falls in commodity prices are likely to prove a drag for industrials, miners and energy companies alike. It is the big banks that traders will be looking at as their bellwethers and those don't really start until next week with JP Morgan, Wells Fargo and Citigroup. Right now, we are just seeing a trickle of earnings, but there have been some positive signs. Pepsico ($PEP) beat expectations with both earnings and revenue, helping shares in the company to advance 2.0% in early trading.
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