More of the same uncertainty for another week?
Gold, the Aussie dollar and economy, and markets in Japan and the US will again combine to make life difficult for local investors this week.
A mostly weak finish on Wall Street for equities early Saturday left our market looking at a small fall when trading re-opens here this morning and the dollar will start trading well under 96 US cents.
Last week’s $US50 billion of losses on Thursday and Friday came on the back of fears about China (which gets another test next weekend and a week today) and fears that the US Fed could be about to start reducing its spending spree.
And we’ll have another test of sentiment about the health of the Australian economy that is likely to end up negative (such is the lack of confidence among investors at the moment).
The Aussie dollar ended around 96.50USc on Saturday morning, our time – down around 0.70 of a cent over the week – It fell under 96 USc in trading on Friday night.
Gold ended with a small gain of just over 1.6% for the week, but lost $US7 an ounce to end at $US1,386.
In New York, the Dow had an 8.6-point gain on Friday, after losing 95 points early in the session. It lost 0.3% for the week. The S&P 500 and Nasdaq lost 0.1% and 0.001% respectively.
Those concerns haven’t gone away and there’s also the impact of the weakening dollar to factor in.
The Aussie dollar isn’t falling of its own volition – it’s being driven lower by a combination of the weakness of the yen and the strength of the US dollar.
AUDUSD Weekly – The Slides Continues
The greenback has risen 16% so far this year against the yen and the euro is up 15% against the US currency. We’re down around 7.5% so far this year.
The AMP’s chief economist Dr Shane Oliver says the "falling $A will likely be an additional drag for Australian shares in the short term as foreign investors will hold back until it has stabilised, but longer term it will be a big positive as in combination with lower interest rates it will provide a strong boost to profits".
"While last year’s low for the Australian dollar around $US0.96 may provide some short term support and it is very oversold technically, with commodity prices now in a downtrend and the outlook for the Australian economy deteriorating relative to the US economy its likely that the $A is headed much lower.
"Given its overvaluation in terms of relative prices and costs it wouldn’t be at all surprising to see it head towards $US0.80 over the next few years."
Oil prices were mostly easier over the week in Europe and the US, responding more to the strength of the US dollar and the weakness in the Chinese economy.
New York crude fell 2% for the week to end around $US93.87 a barrel. in London, Brent crude lost 2.1% to end at $US102.64 a barrel.
Copper prices, which remain heavily reaction to the news from China, lost 0.8% last week (mostly on Thursday and Friday) after the news of the weak early survey of Chinese manufacturing activity . On Friday the metal fell 0.3%, to $US3.295 a pound.
