Global risk sentiment continued to sour overnight as stock markets led by Asian bourses remained under pressure after North Korea successfully conducted a hydrogen bomb test which furthers North Koreas quest to improve its limited nuclear arsenal . This was strange at best as North Korea’s only trading partner, China, voiced its displeasure. Asian Bourses lost between 1-2% and U.S Markets continued the risk off theme overnight.
Economist Charles Kindleberger, author of “Manias, Panics and Crashes ‘’ wrote ‘’new opportunities for profit are seized and overdone. The latest wave of bearish news now seems to be the straw that broke the camel’s back, unwinding Kindlebergers ‘’overdone’’ mania condition. Risk assets under pressure were not just confined to the stock market. The Australian Dollar has felt the brunt of investor selling, losing up to 3-4% across most majors in the first 4 days of the new-year.
The Chinese added to Australian Dollar woes, setting a three week low against the greenback as a result of currency devaluation which added to commodity price weakness and Chinas ability to grow going forward. The yuan was devalued by 0.22%, to 6.531 to the U.S Dollar, which caught the market off guard Westpac foreign exchange analyst Sean Callow said.
The Australian Dollars selling may not be at an end as domestically we have Trade Balance set to be released at 10.30am AEST. It is expected to improve which may provide a boost to the Aussie, any disappointment though may test the Sept low of 0.6900. Tonight the FOMC minutes are released from the December meeting, which as expected raised interest rates for the first time in 9 years. This will give an indication as to whether it was a unanimous vote or whether some voted to keep rates on hold. Janet Yellen has indicated that the pace of any future hikes would be dependent on a continued improvement in both the inflation rate and the Labor markets.