Current base metal prices are falling due to rising output from mines globally and also due to some short-term efforts by China to rein in runaway growth. Lower base metal prices put downward pressure on the SPs of the base metal miners that constitute a large proportion of the ASX, and also reduces demand for the Australian dollar sending it lower. The ausdollar has been weakening for the past fortnight in any case as an indirect result of recessionary fears in the USA being translated into global bearishness. The US dollar remains on its longterm downward path, fortunately for the ausdollar which could otherwise have fallen further.
For Australia, its weaker dollar pushes up prices and inflation, making another rate rise soon more likely. Rate rises strengthen the dollar. When the dollar was stronger recently this was one of few good arguments against a rate rise, but the present weaker dollar is now a reason to favour a rate rise. The higher the lending rate rises, the less attractive shares become. A bearish vicious circle could be in the making for the Australian share market.
Until a circuit-breaker switches sentiment to the positive, my forecast is that the general downtrend will not be turning upwards just yet. When global sentiment is as bearish as it is at the moment, the bearishness has a tendency to be self-fulfilling. Smart bears who fear further falls take their money out of the market, putting yet more downward pressure on prices. All that is required now to complete this particular correction is 2 or 3 days of carnage to push prices low enough for bulls to re-emerge. If this does happen then don't worry, there will probably be a rapid rebound similar to after the August correction.
For Australia, its weaker dollar pushes up prices and inflation, making another rate rise soon more likely. Rate rises strengthen the dollar. When the dollar was stronger recently this was one of few good arguments against a rate rise, but the present weaker dollar is now a reason to favour a rate rise. The higher the lending rate rises, the less attractive shares become. A bearish vicious circle could be in the making for the Australian share market.
Until a circuit-breaker switches sentiment to the positive, my forecast is that the general downtrend will not be turning upwards just yet. When global sentiment is as bearish as it is at the moment, the bearishness has a tendency to be self-fulfilling. Smart bears who fear further falls take their money out of the market, putting yet more downward pressure on prices. All that is required now to complete this particular correction is 2 or 3 days of carnage to push prices low enough for bulls to re-emerge. If this does happen then don't worry, there will probably be a rapid rebound similar to after the August correction.