Aussie dollar rises after RBA holds, Canada set to hold tonight, hunt for yield still on, ASX futures down 13 points

Yesterday's decision from the RBA to keep rates on hold altered the state of the cash rate market quite a lot, and took a lot of selling pressure off the AUDUSD currency pair. Despite the continued strength of the US dollar, the Australian dollar (pictured in today's first chart in orange) reversed the sell-off that it experienced coming into yesterday's decision and is now trading comfortably above US$0.78. The Australian stock market didn't like it, as you can see from the reaction of the black line in today's first chart, and for now most of the 25 basis point cut bets have been pushed out to May rather than April. The RBA may well need some time to work with Australian banks to help structure things in a way that won't see further cuts overcook and already-overcooked housing market.

As you can see from today's second chart, the strength in upward momentum of the ASX 200 has tapered off. But I'm not so sure that means much at all at this stage. I think the market is still convinced that the RBA has an easing bias (and it should, the language in the statement hasn't changed that much) and therefore investors like us are going to continue to pick the market apart for yield and hopefully take advantage of some more takeovers from foreign buyers. I think the rush to buy Toll Holdings (TOL) at such a high price (and thus a skinny arbitrage) is symptomatic of a market desperate to take lower yields in fear of lower risk-free rates to come. For this reason, the big end of the banks, insurers, Telstra etc. are going to remain well bid and this will likely keep this market inflated.

While the yields on many Australian stocks are getting squeezed due to the strength in equity prices, if cash rates continue to fall, we may ultimately see a very different landscape in Australia. Similar to the Blue Chip Portfolio Strategy that Rivkin employs in its Local product, we've begun to test the same strategy on the Dow (where it originally was modelled) and Germany's Dax - while the prospects for a European bounce might help justify such an approach, let me tell you the yields in these areas where zero interest rate policy is in place are not pretty! If you don't already hold a buck of our income picks (that you can find by clicking here), I would suggest you hop to it.

Foreign exchange traders watch for the Canadian rate decision at 2am tomorrow Sydney time. No change expected, which would leave rates there at 0.75% given there have been no further falls in the oil price since the last cut.

Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: Australian GDP out at 11:30am, HSBC Chinese PMI out at 12:45pm, Canadian rate decision out at 2am, US ISM non-manufacturing survey out at 2am, US Fed's beige book out at 6am, all Sydney time.

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