Safe haven assets and risk assets rallied again overnight, exacerbating a clear market conflict. In a world of increasing central bank support these moves could be explained. However with both the US Fed and the Peoples’ Bank of China moving towards draining the global liquidity pool this concurrent rally may be viewed as a temporary aberration.

US ten year bonds have rallied more than 0.25% in two weeks, and the price of gold is up 5% over the same period. These rallies usually occur during a risk off period, or in anticipation of increasingly accommodative monetary policy. Instead central banks are moving towards tightening and share markets are holding ground or moving higher. This market divergence is unlikely to continue.

Some traders point to a correcting USD as the driver of these moves. A weakening dollar makes US investments more attractive, particularly in light of a longer term positive outlook for the currency. International investors with an eye on foreign exchange gains could be driving the cross asset class rally.  If this is the case the modest up move in the USD overnight may take on increased significance.

Asia Pacific investors are facing futures market indication of further gains after yesterday’s mainly positive moves. Oil prices leapt overnight when weekly data showed inventories grew by just over 500,000 barrels against estimates closer to 2,500,000. A resource focus could support Australian shares. The technical picture is also positive while the Australia 200 index remains above the previous high at 5833.