AUD the big winner as risk appetite continues

More positives as equities continued their bull run with the FTSE posting another gain yesterday. The markets were boosted by further signs that the weakness in the US economy was bottoming out. US new home sales rose 11% in June far outstripping expectation- firming and improvement in the housing sector is vital to underpinning recovery. The housing sector is a leading indicator to downturn/upturn in any economy and the news yesterday was greeted well by the markets- sustainability is still the key going forward in this sector and we are still not out of the woods but closer than ever.

As is the trend this good news led to further weakness in the USD and stocks experiencing their longest rally since 2003. The dollar index dropped to its lowest level this year and the main beneficiaries were higher yielding commodity based currencies such as the New Zealand and Australian dollar.

Later yesterday the Reserve Bank of Australia left interest rates unchanged, however the speech by governor Glenn Stevens certainly livened the markets into more action. His speech basically underlined a change in tact from dovish to neutral and raises the prospect of interest rate rises in Australia before any other major economy. The AUD rallied across the market, GBP/AUD down under 2 at 1.9840 and AUD/USD jumping to 0.8250 on the news. Potentially the AUD could reach new highs if risk appetite continues and commodities continue to rally.

Other economic data affirmed that Italian July consumer confidence rose to 107.5, up from 105.4 in June, and better than the median forecast of 105.9. It is the highest read since November 2007. Meanwhile, French industry demand fell in the Q-2, but less sharply than in previous two quarters.