Last week was all about the rise of the Australian Dollar and pull back in tech stocks in the US.

First to the Australian Dollar, this reached a new four-month high last week. Many commentators put the rise down to the possibility of China stimulus but we think there is a lot more to the story. In our view, a number of interrelated factors are contributing to the rise.

Firstly, we are a long way from the troubles in Russia and Ukraine and, as a result, we have seen offshore demand for Australian bonds increase as Australia’s status as a safe haven is revived.

Secondly, there has been a change in sentiment towards our interest rate cycle, with the expectation that rates will increase late this year or early next.

Next, there is a general shift in sentiment toward the Australian economy as a whole. This is being driven by a number of factors: 

• The latest GDP numbers showing that the impact of reduced mining investment is not as bad as expected:
• Interest rate sensitive sectors are responding to lower interest rates with internal consumption increasing and construction poised to rise:
• Higher than expected mining exports, which generates foreign currency to be converted back into Aussie Dollars.

Lastly, being short the Aussie Dollar has been a crowded trade and, as the Australian Dollar rises, positions are being closed down to minimise losses or take profits.

There is of course a real risk that China doesn't provide the stimulus needed to meet the 7.5% growth target. If this happens, we expect more volatility in commodity markets, resource companies and the Australian Dollar.

US tech stocks, which performed well last year and during the first part of this year, have finished the quarter a little weaker after a flood of IPOs diverted investor attention.

The IPO pipeline has taken some of the steam out of the US market as money that would have flowed into the market is being reserved for IPOs.

Once the corporate activity calms down, we expect the tech rally to continue. We believe this will assist the S&P500 to beat market forecasts of an 8% to 9% return for 2014 as the market shifts from a focus on valuations to growth and momentum.

The main risk to the US equity market is that the US economy is improving too quickly and the labour market is tighter than the headline numbers represent. This could change sentiment towards future inflation expectations, which could prompt the market and the US Federal Reserve to change their expectation of how quickly interest rates will normalise.  This change in sentiment may lead to equity market volatility in the coming quarter.