After yesterday’s rates fueled slide, the Aussie dollar remained on a south-bound trajectory overnight with its appeal undermined by the rate cut alongside a moderately stronger greenback over US trade. Although there were flashes of color in the ensuing statement, it reflected a rather drab assessment of economic conditions both locally and abroad. While maintaining their subdued local inflation outlook, the statement acknowledged continued headwinds to growth from abroad, despite signs of progress. For the second month, the statement delicately mentioned a moderation in China’s growth expectations, noting “uncertainty about near-term prospects is greater than it was some months ago.” The statement also reiterated the peak in resource investment is “likely to occur next year, and may be at a lower level than earlier expected.” Once again the high Australian dollar received a mention but failed to expand on well their known thoughts “the exchange rate has remained higher than might have been expected, given the observed decline in export prices and the weaker global outlook.” Despite the lack of colour, there’s little case to suggest this latest rate cut will be the first of a series. The final paragraph summed it up by saying the board decided it was appropriate for the stance of monetary policy to be “a little more accommodative.” At the time of writing the Australian dollar is at a fresh 1-month low of 102.6 US cents.
Meanwhile, the Euro managed to claw out gains against its major counterparts despite comments from Spanish Prime Minister Mariano Rajoy who rejected reports that Spain would formally request a bailout as soon as this weekend. Reacting to a report by Reuters quoting European officials as saying a bailout request was imminent, Rajoy stated “If a news agency reports that we’ll ask for aid this weekend, there can only be two explanations; that the agency is right, and knows more than I do, which is possible, or that they are not right.” But, if it helps, and you accept that what I say is more important than this leak, I say no we won’t ask for aid this weekend.” Nevertheless, Rajoy’s comments failed to significantly dampen expectations a request for financial aid is on its way, with many investors considering a bailout the only viable options for a country mired in debt and unemployment. There’s a sense that a request is near given the release of last week’s budget reforms and bank stress test results, both of which are considered critical housekeeping before Spain can formally request financial aid, in-turn key requirement to unlock the ECB’s bond market intervention program. Its abundantly clear Spain’s path of least resistance will be to make a formal request for aid in the near-term. Should Spain show further reluctance it will no doubt see Spanish debt markets punished, ultimately leading to the same conclusion. Another potential theme which could hurry the proceedings is a Moody’s review which is tipped to see the ratings firm downgrade Spain to Junk status. The EURUSD pair move to highs of 1.2970 before settling lower after the Rajoy comments. At the time of writing the Euro is buying $US1.2915.
