Uncertainty

Turmoil continues to rock global markets with uncertainty in Europe causing a flight to quality as fears of financial market paralysis re-emerge. The AUD, despite what we may think, is regarded as a high risk currency. It's fate is in the hands of the global economy - particularly China. If the global economy looks like it might be heading into trouble the rational is to get out of AUD. At 10.30 the AUD / USD was about 82 cents.

The uncertainty surrounding global growth and it's potential impact on our economy is also causing a re-think in interest rate markets. The yield curve has flattened significantly over the last couple of days as a more extended rate hike pause than first thought is priced in. The real impact has been in longer rates where the 5 year swap rate has experienced significant volatility as indicated below:

5/5/10 6.07%

8/5/10 5.65%

13/5/10 5.89%

21/5/10 5.51%

These lower long term rates are making FRNs a much more attractive long term investment if you are looking at this sort of term.

6-month BBSW has dropped 15 points this morning