The US Dollar had a very strong night holding support at 10500 and ending up the session a little over 2%. The biggest losers were the Aussie Dollar falling nearly a full cent and the Euro falling a tad over half of 1%. When we look into the potential catalyst for both the rise in the reserve currency and the fall in the Australian and Euro currencies we find a couple of suspects.
First, ISM Manufacturing came in right on forecast, give or take with a reading of 55.4. Forecasts were for a rise to 55.5 from the previous months reading of 54.9, but it was still a good number.
Why ISM Manufacturing is such an important reading is as a result of its relevance to the whole U.S economy. The U.S was built on manufacturing and industry, making and then selling their goods and services to the world, helping to make the U.S. the economic giant that it once was. So when you get to talk to 300 manufacturing firms, and ask them questions on how their new orders, production inventories, employment etc are tracking, if you come back with collective thumbs up from these firms, then you have the potential for sustained economic growth.
As a result of this positive number, (maybe) the Fed starts to rethink their monetary policy, (maybe) they start to rethink the price of money (interest rates). And if these “maybes” become reality, then maybe the U.S Dollar is worth more than what it was yesterday. It’s a case of create an opinion and then invest in that opinion. As we all know, in 24hrs that opinion can change, but for now the US Dollar is king of the castle.
Locally here in Australia yesterday we had Building Approvals YoY come in way below estimates, one thing that tells us, we are NOT building new houses in Australia at the moment….the building industry has ground to a halt. It is still a case of one week we get a glimpse that the recovery here down under may be underway, and then the next week we get a reality check that all is not well.
There is support for the Australian Dollar at low 92s versus the USD. We have a lot of event risk throughout the week that could put those levels at risk; one of the most important domestically is the RBA rate decision 2.30pm AEST. Watch this space.