AUD/$: Still on track to return to 2008 highs with a break above 0.90 providing the next  technical boost.

Despite the recent weakness seen in economic data, investor’s will soon forgive this, if third quarter earnings surprise on the upside. This week see’s the start of the US earning season with Alcoa due to report on Wednesday after the market close. Other well known companies due out this week include Pepsi, Yum Brands and Costco Wholesale.

Second quarter earnings provided a key boost towards equity market sentiment and beat analysts expectations. These gains, however, were achieved primarily through cost-cutting. In this quarter, investors will be more concerned to see if there has been any improvement in revenue growth. Currently, Reuter’s data show that third quarter earnings are forecast to drop 24.7% from a year earlier, which is still a relatively low hurdle rate to beat; particularly given the improvement seen during the second quarter results.

The economic calendar is relatively light this week, but today’s US ISM data will be closely monitored to see if it breaches the key 50 mark indicating expansion. Apart from retail sales data on Thursday the week will be dominated by Fed speakers including Bernanake on Thursday and Vice Chairman Kohn on Friday.

In the UK, we have latest earnings updates from Sainsbury, Tesco and Carphone Warehouse. We have service PMI’s in Europe and the UK today and Eurozone retail sales. Later in the week, the UK will release its latest data on industrial/manufacturing production and PPI. Meanwhile, Thursday MPC meeting is expected to produce no change to interest rates or asset purchase target. The ECB is also expected to leave rates unchanged.

But, one central bank that could change interest rates this week is Australia. The Aussie dollar has risen sharply as two influential columnists wrote that there was a real chance of an interest rate rise this week, which is much sooner than anticipated. Given this growing expectations coupled with the continued weakness of the US dollar the AUD/$ could see further gains as it heads back towards its 2008 highs.

Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:

Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.