Risk trends favored high-beta currencies overnight with commodity trio the CAD, Kiwi and Aussie leading the charge higher. Yesterday’s news that Moody’s left Spain’s debt rating unchanged created a key inflection point for risk sentiment, at the expense of safe haven currencies the US dollar and Japanese Yen. Although the agency maintained their negative outlook, Spanish debt is still considered a low class of ‘investment grade,’ with the official rating left unchanged at Baa3. Markets had largely anticipated a ratings cut to Ba1 or lower, which would essentially place Spanish debt in the speculative investment or ‘junk’ category. The period to follow saw an immediate relief rally across the board in early Asia and the momentum carried on through European trade with Spanish debt yields falling across the curve. Euro long-side positioning was also increased resulting in a further squeeze of some of the weaker hands in the market, which provided a solid platform for gains. Hopes of a near-term Spanish bailout continued to underpin gains across the risk spectrum with Spain believed to making a decision within weeks. A precautionary line of credit may also be considered instead of a bailout according to reports. Nevertheless any short-term debt market relief may be tentative at best if Spain’s decides to sit on their hands. The Euro is currently buying $US1.3120 after earlier highs of $US1.3141.
US corporate earnings also remained the key focal point, and although the balance of reports have outpaced expectations, there’s was little overnight to inspire a significant rally with equity markets finishing moderately higher on the day. The macro picture, however, was much more encouraging with US housing data outstripping expectations. Housing starts climbing 15 percent in September from an upwardly revised 4.1 percent in August. US building permits also jumped 11.6 percent in September from a fall of 1.2 percent in August.
After a period of weakness recently, we’ve seen the appeal of the Aussie dollar somewhat rejuvenated with price action moving to highs of 103.87 against the greenback and near 1-month highs of Y82.10. The day ahead will see China take centre stage with the release of third-quarter GDP scheduled for 12pm AEST. Total output in the region is expected to show 7.4 percent growth, from 7.6 percent in the second-quarter. The latest GDP result will be accompanied by data on Industrial Production, Retail Sales and Fixed Asset Investment, with property price data to be released at 11.30 AEST. On balance the Chinese data pulse has been supportive of the Aussie dollar in recent sessions with trade data released over the weekend showing a bounce in export activity. Exports from the region climbed 9.9 percent in September from 2.7 percent in August, while imports return from negative growth to rise 2.4 percent after a 2.6 percent fall in August. Overnight, Chinese Premier Wen Jiabao was reported as saying in a recent meeting “China’s economic growth has started to stabilise,” and he is confidence of achieving annual growth targets.