The Australian Dollar remains under pressure as poor trade data added to the rate cut the other day to continue pushing the AUD lower. The Australian trade deficit widened more than expected to AUD -2027m in August. The expectation was for -685m.
The prior month’s deficit was revised from AUD -556m to AUD -1530m. The Australian trade figures have been in a deficit the entire year of 2012. Data released today also showed that exports fell -12.3% while imports only rose 5.4%. The keys to those figures were lower commodity prices as well as less demand for goods from China. As far as the RBA rate cut is concerned, while the move was considered somewhat of a surprise by most analysts, the RBA is expected to continue with their rate cutting ways.
Analysts rate further moves at an 80% chance that the RBA will have rates at 2.75% by February. A move to this level would bring rates in Australia to its lowest level since January 1980.
Moving west towards Europe, we find that Moody’s stated yesterday it is still reviewing Spain and that there is still a possibility of lowering its Baa3 debt rating. They said they will announce their decision this month. There were reports that the Spanish banks may require up to EUR 105 billion to recapitalize, which was nearly double the amount of the estimate from the stress tests. As far as Spain requesting a sovereign bailout , there are still rumors that this will happen soon, but to this point Spanish Prime Minister Rajoy stated that there was no immediate plan for requesting financial assistance.
As for the other happenings in Europe, the “troika” stated that there was good progress made in Greece, but skeptics still believe there will be no agreement before the next bailout payment is due later this month. It was also reported that Ireland is “well on track”, while Portugal is “broadly on track” regarding implementation of conditions for the banking bailout.
The main news out of Europe this morning was release of the Eurozone September PMI. The number decreased to 46.1 in September from 47.2 in August. This was close to the consensus number of 46.0.
Attention now turns to tomorrow’s meeting of the ECB. As recent data from the Eurozone points towards a greater slowdown, this increases the possibility of an ECB rate cut at the meeting tomorrow. There is debate over this because one more rate cut is believed to be as far as the ECB will go, and analysts are split over whether tomorrow is the time to make that last cut.
As for the EUR, the currency had fallen below the 1.2900 level before the PMI release, but has since moved back above that level and is trading near its overnight highs, just below 1.2930. Levels of interest on the topside remain, 1.2970 and 1,3060. Support below remains at 1.2820 and 1.2795. This trading range is not expected to be breached in the next few days.
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