US Markets Rise on Earnings; Spanish Aid Hopes Boosts Euro

US markets applauded a solid round of earnings overnight with third-quarter earnings from Goldman Sachs outpacing expectations, following yesterday's stronger than expected earnings from banking heavyweight Citigroup. Given the less-than-encouraging expectations and cautious positioning leading into earnings season, a series of upside surprises has breathed new life into equity markets.

The Euro resumed a northern trajectory on Spanish bailout hopes and reports suggesting Germany is open to the idea of providing Spain with a precautionary line of credit, funded by the European Stability Mechanism. Still markets have high expectations surrounding Spain's eventual request for a bailout, an essential part the equation of unlocking the European Central Bank's 'Outright Monetary Transactions'. The Euro made a convincing break to the upside of $US1.30-figure in early trade with the momentum carrying the shared currency to highs of $US1.3062. Markets appear to have come to grips with waiting longer for Greece and the Troika to strike a deal over budget reforms. Despite last week's optimistic call by Prime Minister Antonis Samaras that the impasse will be bridged before Thursday summit, Monday Finance Minister Yannis Stournaras said they are unlikely to strike a deal before the meeting. "Negotiations will continue until the EU summit and after it." Greece is trying to find an additional 13.5 billion euros in cuts and it's expected without the next 31.5 billion euro bailout instalment, the country will run out of funds by November. Still prospects of a bailout for Spain kept a steady flow of bidders to the Euro which rose to weekly highs against the greenback and forged monthly highs against sterling and over 3-month highs against the out-of-form CAD. The Kiwi and CAD were an exception to the risk-rally, with both currencies falling against major counterparts.

The Canadian dollar has been marred by the recent dovish turn from Bank of Canada Governor Mark Carney who said in a speech Monday "Elevated global uncertainty is holding back global economic growth and, thus, the demand for Canadian exports. In addition, there is some evidence that global uncertainty is affecting domestic activity." In turn, we've expectations surrounding the unwinding of accommodative policy pared back, given the relative knock-on effect of slower growth prospects. Markets now expected the central bank to downgrade growth prospects in next week's Monetary Policy Report.

Likewise, the Kiwi suffered after yesterday's CPI print which showed inflation remains subdued and well below the RBNZ's official target. Although it doesn't necessarily imply the bank will cut interest rates, it clear the bank has the scope to hold rates steady at 2.5 percent for longer. Third-quarter Consumer Prices grew at a yearly pace of 0.8 percent according to the latest data, down from first-quarter growth of 1-percent.

Meanwhile the Australian dollar was gently squeezed higher overnight with positive risk trends prompting modest gains. The local unit got a boost after yesterday's RBA policy meeting minutes and a risk-on environment overnight kept the bids flowing. With little in the way of major market moving data this morning, we anticipate the Aussie will stay within range with regional equity performance likely to prompt only small moves ahead of the European handover. Key to the Aussie's fortunes this week will be Chinese GDP, which is expected to show 7.4 percent growth in the third quarter, from 7.6 percent in the second-quarter. The latest GDP result, alongside data on Industrial Production, Retail Sales and Fixed Asset Investment will be released on Thursday. At the time of writing the Australian dollar is buying 102.65 US cents.