In contrast to the barrage of major market moving themes seen in recent weeks, we’ve seen little in the way of top tier directives to keep the upside momentum alive. Despite a well-attended debt auction overnight, we’ve seen the focus shift back to Spain as investors await news if the Rajoy Government will ask for a bailout in order to qualify for the ECB’s bond buying scheme. In recent weeks we’ve seen the Euro propped up by the prospect of ECB intervention, and while this may remain a critical pillar of support, reluctance from Spain to formally request a bailout appears to dampening enthusiasm. Despite a slightly better than anticipated German ZEW release, the Euro continued to grind lower overnight with a break to the downside of $US1.31 before bottoming out at $US1.3028.
Across the Atlantic it appears the Fed’s inspired rally seen last week has all but faded with risk barometers such as U.S stocks largely flat on the day. The Australian dollar has remained under moderate pressure overnight amid a lack of positive directives to keep the upside momentum alive. The ensuing period of yesterday’s RBA minutes release was moderately supportive of the local unit for a short period before grinding lower in the latter part of the domestic trade. The minutes demonstrated the board has the breathing space to further support the economy noting “the current assessment of the inflation outlook continued to provide scope to adjust policy in response to any significant deterioration in the outlook for growth.” The minutes also acknowledged the implications of the high Aussie dollar, noting the high exchange rate was “weighing more heavily on the economy than might be expected.” In short, there is a valid case to suggest the RBA’s next move could indeed be to cut rates; nevertheless it is also clear the board are reactive to the incoming data pulse which may not cement the case for further monetary easing in time for a November rate cut. Both macro and anecdotal evidence continues to point to diminishing growth prospects in China, amid a reluctance from monetary authorities to embark of further easing initiatives given the risk of reigniting inflation. There’s also a sense the Peoples Bank of China may hold off on new stimulus measures in response to the Fed’s latest quantitative easing venture. It’s clear the Aussie dollar as a proxy to China continues to reflect this negativity.
Locally, we have the Westpac leading index on the docket at 1030 AEST which we anticipate will have very little effect on A$ price action in the domestic session. All eyes will be on the Bank of Japan who will wrap up their 2-day policy meeting, which is widely expected to see the bank announce further stimulus measures in an effort to boost their export-contingent economy. The decision is scheduled to take place at 1300 AEST.