It was another session of milestones for currencies overnight with the Euro falling to multi-year lows against the greenback, sterling and Australian dollar. News the German Constitutional court has further delayed the ratification of Europe’s permanent bailout fund, (the European Stability Mechanism) kept the balance of risk on the side of caution, in-turn promoting deep losses across the risk spectrum. With a great deal riding on the successful implementation of the permanent rescue fund, news of delays undermines recent initiatives which rely on the fund’s EUR500 billion capacity, including the latest plan to recapitalize Spanish banks. Meanwhile, European finance ministers have agreed to provide an initial installment of EUR30billion to recapitalise Spain’s ailing banking sector with the first disbursement of funds to come from regions temporary bailout fund. The total amount of provisions set aside will remain at EUR100 billion, but a final figure will not be known until July 20. Ministers also agreed to allow Spain additional time to meet the strict budget deficit targets to 2.8 percent of GDP by the end of 2014 and placed lower deficit targets on 2012/13.
The Euro was driven to fresh 2-year lows against the greenback overnight with the pair falling to $US1.2234 and has since consolidated losses around current levels of $US1.2234. The theme of Euro weakness was not limited to the U.S dollar with the EURAUD pair falling to euro-era lows below 1.20-figure while retreat back to levels not seen since 2008 against sterling.
Local data on the docket this morning includes Westpac Consumer Confidence and Home loan activity data, however we anticipate regional equity markets will remain the key barometer for risk currencies in local trade. Market participants may also use the day ahead to recalibrate position ahead of key forthcoming events including, FOMC minutes, Australian employment numbers and Chinese GDP.