An unexpected trade deficit helped push the Australian share market towards its fourth loss in five sessions as the dollar slumped to a three-month low this morning.
At lunchtime the ASX 200 was down 10 points or 0.2% at 4326 as gains in financials and defensive sectors were swamped by falls in resource stocks. Small caps also copped a drubbing, sending the Small Ordinaries down 1.2% versus a 0.2% drop in the ASX 20.
The dollar plunged to its weakest level in 11 weeks after the prospects for a rate cut next month were brightened by a February trade deficit of $480 million. The market had been tipping a surplus of around $1.1 billion. Exports fell 2% and imports by 4%. The dollar was recently buying US$1.0278.
"The ability of the Aussie [dollar] to hold above parity is definitely being questioned," FOREX.com market analyst Chris Tedder told Fairfax. "A diminishing possibility of more quantitative easing from the [US] Fed and underlying weakness in the Aussie has now combined with an augmented chance of a rate cut by the RBA... We may see the Aussie reaching 93.8 US cents in the short-medium term."
Also weighing on sentiment were weak US futures and falls in Japanese equities. The Nikkei dropped 1.39% this morning. Shanghai and Hong Kong were closed for public holidays. Dow futures were recently off 33 points or 0.25%.
Crude oil futures dropped 34 cents this morning to US$103.72 a barrel. Spot gold was $4.80 weaker at US$1,642.60 an ounce.
If small caps are a proxy for risk appetite, there's a retreat underway this morning. The XSO is off 1.2%, erasing a week and a half of gains. Doesn't make it easy for traders and I did it tough this morning. Squeezed half a cent out of MEO and had a first nibble at CSR - looks overdone short-term and should benefit from the declining dollar. Thought MRM, KCN and DOW were safe buys around these levels but neither has done much. Took TSE too soon. Hard yakka for little, if any, reward.
