STATE OF THE MARKETS
Stocks mixed as Dollar flirts with 91 handle. US stocks closed with mixed tone on Monday after non-voting Feds member Robert Kaplan said on Friday that Feds should start thinking on tapering. The comment saw Dollar regained the 91 handle, and heavy bidding for Dollar was seen on the Swiss exchange on Monday. Dow (+0.70%), and S&P500 (+0.27%) edged higher, while Nasdaq (-0.48%) closed lower as the 10Y bond yielded 1.60%.
Crude remained bullish, regained earlier losses and closed above $64.60/bl, despite reports that the third largest oil importer India is struggling with rising Covid cases and death, that would hamper demand. Gold also recovered its 7 days losses, to close above $1,792/oz, as investors see coming inflation as Feds waits further on tapering.
In the FX space, Kaplan’s comment seemed to trigger Dollar repositioning in the short and medium term accounts. Medium term accounts seemed to favor Loonie, Swiss, Dollar and Sterling over Euro, Aussie, Kiwi and Yen. Long term accounts seemed more bearish as Swiss and Euro took the reign of demand. Short term accounts saw heavy bidding for Aussie as RBA keeps rate unchanged at 0.1% and upgrades its economic outlook.
OUR PICK – AUD/CHF
Unchanged rate but hawkish RBA. Australia’s central bank, RBA, today kept its rate unchanged at 0.1% but forward guidance from the bank sounded hawkish. First, RBA upgraded its GDP forecast from 3.5% to 4.75% (a sizable 1.25% uptick) for this year while keeping 2022 forecast unchanged. Second, RBA expect inflation to remain modest and below its target band. While this may cap Aussie growth, the real deal is when RBA announced that it will not extend the term facility for banks when it ends this June. The lending facility allows banks to borrow from RBA at 0.1% for three years, which in turn used to lend for mortgages around 2%. With rising property prices in Australia, RBA is keen to keep it under control.
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