Bell FX Currency Outlook: The Australian Dollar is hovering around USD0.9950 this morning, after an interesting night with equity markets gaining, despite increasing concerns over the Euro debt crisis.
An employee carries copper hoses at the Sociedade Paulista de Tubos Flexiveis metallurgical company, which manufactures flexible metal hoses in Sao Paulo.
Australia: It was a busy market last night with the decision by Fitch to downgrade 18 Spanish banks driving big moves on European sovereign bond markets. Investors are becoming more unsettled about the outlook of the euro-area.
Spanish and Italian bonds were once again sold heavily, with 10-year yields rising by 18.5bps and 13.7bps respectively and Spanish 10-year yields trading at a euro-area high of 6.78%.
German 10- year bond yields rising 12bps and French yields 17bps, suggesting investors are becoming concerned with conditions within the euro-area as a whole.
Confusion continues as equity markets were bid on both sides of the Atlantic. Locally, the NSW Government released the 2012/13 budget. An improved budget balance beyond 2013/14 was projected due to spending reductions, including 10k public sector job cuts.
The State's AAA credit rating was reaffirmed yesterday by Standard & Poor's. The NAB Survey for May showed business conditions and confidence declined, hence further signs of a softening economy.
Today sees the WBC consumer confidence data released and the market will look for signs if the RBA rate cuts have boosted confidence. RBA Governor Stevens speaks today at the PM's "Australia in the Global Economy Economic Forum" featuring "Australia's Patchwork Economy and the High Dollar".
Looking at the AUD, whilst it remains bid, the European situation is real and is absolutely complicating the outlook. It is hard to see further strong gains at the moment, certainly prior to the Greek election.
Majors: In foreign exchange markets, the main focus was a broad-based sell-off in euro area sovereign bond markets, including Germany.
The EUR was slightly stronger alongside a weaker USD, which was sold in conjunction with more speculation of QE3 as Chicago Fed President Charles Evans stating "I've been in favour of pretty much any accommodation policy I've heard about".
Finishing today with Spain, Fitch noted "Spain is expected to remain in recession through the remainder of this year and 2013", compared with previous expectations that the economy would begin to recover in 2013, adding that Spain is likely to "significantly" miss its 2012 and 2013 deficit targets.
Fitch also said that euro zone sovereign ratings are under "strong downward pressure" and that "a Greek exit could lead to downgrades to AAA-rated countries".
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