The Aussie is Testing 86 Cents Again, Australian Markets Looking for Direction

The Australian capital markets continued to bounce up and down with decaying amplitude, the ASX dancing around the 6000 level and 10-yr yield focusing on 5.950 respectively. The flow of good news did not help the Australian dollar significantly, and the modest gains are attributed to the US dollar weakness and the recovery of the carry trade sentiment. The Australian markets are expected to pick a direction next week.

Rio counts on prices - Australian mining giant Rio Tinto was hurt by escalating mining costs, just like Alumina, reporting a revised first-half profit to be down 14%. Their financial report revealed that development costs at Argyle were 65% higher than expected amounting to $1.5 billion. The company hopes that rising commodity costs and healthy demand will offset the costs and will make the bottom line stronger by the end of the year. Rio is also not concerned that the turmoil in world capital markets will jeopardize the financing of its $44 billion takeover of Canadian Aluminum giant Alcan. Rio stated that it is prepared to sell Alcan?s packaging business and some more assets, totaling to over $10 billion to finance its debt. Source: The Australian,25197,22179693-643,00.html
Telstra ‘paid $165,000 for biased advice’ - A book Inside Spin: The Dark Underbelly of the PR Industry by journalist Bob Burton revealed that the Australian telecom giant Telstra had paid the Institute of Public Affairs (IPA) over $160,000 for advice on Telstra?s regulation and ownership. The telecom company was majority government-owned at the time, and it used government money to fund the think tank?s advice that was biased. However, Telstra spokesman Andrew Maiden stated that Burtons claims were “very uncontroversial” as “Telstra makes no apology for supporting organizations that we believe advance our interests”. Source: Herald Sun,21985,22182719-5012062,00.html
’China coal demand to last decades’ - The Federal Treasurer Peter Costello stated today that he expects Chinese growth to last a very long time and its demand for coal to remain hot for decades. However, he noted that the coal needs to be clean to take advantage of the demand. The Australian mining companies that appeared to have run into higher mining costs and are now downgrading their profit projections are counting on 9% growth of China to keep their revenues healthy. Source: Herald Sun,21985,22182771-5012062,00.html
The flow of positive news was certainly favoring the Aussie today. The media took notice of the TD Securites-Melbourne Institute monthly inflation gauge that printed 0.6% increase of inflation in July, fastest pace in almost a year. The hot inflation has increased the speculation that RBA will raise rates, making it almost a certainty, but the Aussie took no notice of the release. The Australian currency remained in tight grip of the equity markets and carry traders. As the Dow rallied slightly over 100 points yesterday, the US dollar weakened across the boards as carry traders started buying again. The recent agreement of government to cut income tax on dividends and interest from 15% to 10% is indented to attract investors to the tumbling Australian financial markets. However, carry traders bought with caution and the Aussie failed to recover even to 0.8612 that it reached earlier this week, stopping at the psychological 0.8600 barrier. All in all the recovery seemed weak taking into account the amount of ‘good news? that should have helped the Aussie spike up.

[U][B]Stock Market[/B][/U]
The ASX moved nowhere fast today, closely resembling yesterday?s price action. The Australian equities took lead from the advancing US equities again, but remained bullish for a very short time, falling lower just few hours after the open. The mining industry brought bad news again with Rio Tinto reporting the half-year profit 14% lower on surging costs. The mining giant BHP Billiton has rallied today though, leading the ASX with its fkdsj % gain. A global support services company Brambles Limited, not a frequent top index mover, has contributed a lot today surging 2.9% after a strong earnings report. The banks advanced again, as the concerns about the US subprime crisis eased. Australia and New Zealand Banking Group was in the lead with a 0.75% gain. The index barely squeezed into a positive territory just before the close, gaining infinitesimal 9.2 points, closing at 6021.00 its 0.15% gain looking unimpressive next to the Dow?s 0.76%.

[U][B]Bond Market[/B][/U]
The 10-yr yield maintained almost perfect correlation with the ASX today, also taking a strong positive lead at the open, but then quickly loosing the gains and converging on a modest gain. The yield took no notice of the TD Securities Inflation report. The 10-yr closed with a mere 0.6 bp gain at 5.951%, preparing for the next move.