Australian Dollar Sells off as RBA Neutral on Hikes

The Australian markets today were affected by both internal and external factors. Externally, US yields and equities, as well as commodity prices had positive impact on stocks and bonds but the speech by RBA governor Glenn Stevens did not deliver a hawkish message anticipated by investors weighing on the Australian dollar. His neutral speech both denied the ‘myth? that the hike will not take place during the election year and stated calmly that RBA has time to react to market?s movements. The AUDUSD fell 20 pips to .8386 and the 10-yr yield lost 4 basis points.


Headlines
RBA shatters election year ‘myth’ - the Reserve Bank governor Stevens objected the idea that the rates will not be changed during the election year. He assured public that the elections will not distort the work of the bank in any way. “All we can do is show up every month, work out the right thing to do and do it” said Stevens. Source: The Australian
http://www.theaustralian.news.com.au/story/0,20867,21904608-601,00.html
Disclosure is key: ASX - different reports reach dissimilar conclusions about the quality of corporate governance in Australia. The Australian Securities Exchange noted that 75% of listed companies and 72% of trusts followed the 28 corporate governance practices set forth by the Exchange. In just a week, the stock exchange is due to release revamped governance guidelines in an effort to further improve reporting and market transparency. Source: The Australian
http://www.theaustralian.news.com.au/story/0,20867,21901090-20142,00.html
Storms take edge off mining boom’s benefits - The effects of the mining boom have been diminished by the natural hazards that amounted to $1.5 in damage to the economy. Source: The Australian
http://www.theaustralian.news.com.au/story/0,20867,21901084-5005200,00.html
Currency
Aussie did not have major economic releases today and did not see major price movements. The news of the day was the speech of Glenn Stevens, the governor of Reserve Bank of Australia. His speech was neutral, hence the public that was anticipating a more hawkish address was disappointed slightly and that resulted in a decline of about 20 pips to .8386. While the possibility of a hike is out of question, analysts predict that it will not happen quite as soon as they were anticipating. Experts of a major investment bank foresee a quarter point move in the third quarter, while another bank doubts that a rate hike will take place before the end of 2007. Glenn?s speech also had the Aussie retreat from its 15 years high against the yen by 34 pips to 102.84.


Stock Market
Stock markets continue their game of tug of war with the bonds. As the US yields have dropped to 5.20%, Dow rebound by 1.41% to 13,482.35 and ASX followed suit and saw a 1.302 % change, closing at 6,261.20. Commodities, such as crude oil and copper rebound and Australia?s mining companies that were leading a drop yesterday, now were championing the rally up. BHP Billiton gained 3.4% and Rio Tinto gained 4.2% recouping yesterday?s losses. ANZ Bank, nation?s third largest bank, has also risen by 0.6% joining the lead of the ASX rise.

Bond Market
The 10-yr yield lost 6.2 basis points dropping to 6.236%. A little slide was observed at the open, led by the decline of the US bond yields. However, the largest drop occurred after Glenn Stevens delivered his neutral speech and the investors and analysts concluded that a rate hike will not take place quite as soon as they anticipated.