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Morning Market Update 03/03/2009

Posted by chrisdshaw in FX.
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Following a sharp sell-off in equity markets around the world, with US markets closing at a level last seen in the spring of 1997 and a strong rally of the dollar as a flight to safety, the overnight Asian session provided some comfort. The decision by the RBA not to cut its key interest rate (leaving it at 3.25%) lead to a rally in the Australian Dollar against the USD from 0.6340 to a high of 0.6459. In an accompanying statement the RBA said it believed that the Australian economy was ahead of the curve in the global economy. Other data out from Australia painted a relatively positive picture: the Current Account deficit was narrower than expected, posting at AUD -6.5bn in Q4 compared with the forecast of AUD -7.4bn. Tomorrow’s Q4 GDP data will give much clearer direction to the market about whether the Australian economy has managed to escape the worst of the downturn.

The return of risk appetite was helped further by a World Bank report saying that the worst of the financial crisis had passed. The EUR and GBP rose against the dollar, reaching 1.2660 and 1.4159 respectively, before softening once again in morning European trading. The UK Purchasing Managers’ Index, a survey of manufacturing companies which gauges  the pace of expansion or contraction, fell to 27.8, a record low and far below the consensus forecast of 34.2. Likewise, equity markets were also slightly down, with the FTSE falling 1.2%  and the Dax falling about 0.5% in late morning trading.

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