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MV Weather Report: Aussie Rate Hike Triggers Dollar Earthquake


Rain or shine, we review the day's biggest stock stories.


In the wee hours of the morning, a few stories broke that led to a commodities rally, a dollar whacking, and finally a stock rally.

The first came from the down under as the Reserve Bank of Australia raised its key rate 25 basis points to 3.25%. It became the first G-20 nation bank to unwind its fiscal stimulus.

The move by the bank of Australia crushed the dollar and helped move the EUR/USD up by 0.44% to 1.4714. Gold made a new all time high at $1045 but closed slightly below that at 1043, up 2.45%. Crude Oil was strong as well finishing up 0.89% to $71.04.

Finally, the whacking of the dollar led to an across the board rally in US stocks as the S&P 500 finished the day higher by 1.37% to 1054. The broad base rally was lead by Baidu (BIDU) 5.00%, eBay (EBAY) 4.54%, Alcoa (AA) 3.50%, and Intel (INTC) 2.77%.

Gold made a ton of noise two weeks ago but today it finally broke out (see Professor Lance Lewis's article). Today on the Buzz and Banter, he gave an update to his article.

"With spot gold making a new all-time intraday high today, it'll be interesting to see how the gold stocks respond given that the short interest in many of the large cap golds (like Newmont Mining (NEM)) has risen quite a bit lately, and the short interest in the goldminer ETF (GDX) is actually at a record per the most recent data.

"My guess is that a lot of specs have gotten pretty short the gold stocks and were betting on a rally in the dollar and a collapse in gold. With today's new high in gold, it should be obvious to these shorts that those bearish bets are wrong.

"Remember, gold typically leads the dollar. Along those same lines, today's new all-time high in gold is telling us in no uncertain terms that the dollar index will soon be making new 52-week lows below its late September low, just as gold's rally in early September foreshadowed the dollar index taking out its early August lows a mere few days later."

Another reason the dollar may have been whacked today is because of the second story which was speculation that the Gulf Arab Oil exporters were holding a secret meeting to replace the dollar with a basket of currencies that would track oil. This story was later denied by oil exporters. However, some aren't buying it and today on the Buzz and Banter, Professor Jeff Cooper gave his thoughts on this situation:

"My gnome high in the Appalachians just pinged me to say that the Russians and Chinese may be using the Iran nuke issue as leverage to introduce a basket currency to replace the dollar as the world reserve.

"He believes that Netanyahu went to Russia last month with a list of Russians working for Iran on their nuke program.

"Although, the Saudi's deny that they and the Russians are not in league to replace the dollar as the exchange currency for oil, it seems the market is not buying it and is more inclined to believe that where there is smoke there is fire.

"The fuse: the US could be forced with a gun to their head to raise interest rates.

"We could be witnessing a powder keg that blows up the government bond bubble."

Here's a brief summary of what happened: the Aussies raised interest signaling the global economy is better off than we think (it spurred demand for higher yielding assets). This crushed the dollar and sent gold to a new high. Plus oil exporters are seriously considering dropping the dollar (that move would also crush the dollar) and this fueled a stock rally. Did I mention the problems with Iran?

Have a great night!

Position in GDX

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