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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (72074)	1/17/2010 11:24:37 AM
From: Haim R. Branisteanu	Respond to of 74559

China Concerns Won't Hurt Aussie For Long By NICHOLAS HASTINGS A DOW JONES NEWSWIRES COLUMN LONDON -- Aussie bulls should not panic. China's decision to raise the minimum reserve requirement for banks may have come a little earlier than expected and certainly signals a move by Beijing to curb liquidity and rampant domestic demand. But that doesn't mean that China is about to slam on the monetary brakes and seriously damage demand for imports from Australia and other major commodity-producing countries. Far from it. History tells us that the country prefers a more gradual shift in policy that should keep the economic recovery on a more sustainable path and the demand for Australian commodity exports on a continued rise. So rather than taking the news from China as an excuse to continue selling the Australian currency down from its recent high just over $0.9300, the Aussie's slide towards $0.9100 should be taken as an opportunity to go long again. And if that Aussie/U.S. dollar trade doesn't convince, given the continued uncertainty over global financial market sentiment as well as the gyrating expectations over a U.S. rate hike, there is always the Aussie cross against the yen. The strategy team at The Royal Bank of Scotland noted that a sharp cutback in Japanese retail investor positions in the Australian currency over the last month means there is now room for the pair to rise again. "They are probably looking to build up positions again, which should also provide downside support for Aussie/yen," the strategists said. But, back to China. The 50-basis-point rise in the reserve requirement may be seen as a signal that the Peoples' Bank of China is preparing to start hiking interest rates and prevent the economy from overheating. However, there is still a long way for the PBOC to go. Liquidity in the country remains high, but Beijing may yet wait until the U.S. itself starts tightening its own policy before moving much further. Remember, a unilateral rate move by China would put even greater strain on the yuan's currency peg against the U.S. dollar. Also, the last time China launched a rate-tightening cycle back in 2003, over a year elapsed between the first rise in bank reserves and the eventual first increase in interest rates, according to the currency team at BNP Paribas. And then, it wasn't until the summer of 2005 that Beijing actually allowed the yuan to start rising against the dollar. Of course, the pace of Beijing's latest policy shift may well depend on just how fast Chinese inflation pressures are rising. Similarly, support for the Aussie may well depend on just how strong confidence is in the Australian recovery. But, chances are that the sharp knock Beijing's latest announcement gave the Aussie is looking distinctly out of proportion to what it means for Chinese interest rates just now. The Australian currency is already showing signs of recovery early Thursday after new data showed that instead of rising to 5.8% as expected, the country's unemployment rate fell to 5.5% from 5.6%. By 0745 GMT, the Aussie was up at $0.9320 from $0.9230 late Wednesday in New York, according to EBS. The news also helped to lift global sentiment, with dollar rising to Y91.83 from Y91.47 while the euro rose to $1.4536 from $1.4507. The single currency was also up at Y133.45 from Y132.71. The yen wasn't helped by news from Japan that machinery order had declined 11.3% in November. The market had been looking for a 0.2% rise.