06/10/2012 | 09:15pm
— Euro and Australian dollar get strong early lift after Spain, China news
— Positive sentiment to abate as focus switches back to Greece
WELLINGTON–The euro and the Australian dollar got a strong boost early Monday after Spain secured a EUR100 billion bailout agreement from the European Union to boost the capital of its battered banks and China’s weekend economic data turned out to be far less dire than markets had feared following its surprise rate cut late last week.
Market participants said the relief rally may persist for the next few days, but warned that concerns about Greek elections this Sunday will soon start to weigh on the mood.
The euro jumped to US$1.2669 early in New Zealand from US$1.2517 late Friday in New York while the Australian dollar nudged above parity to a high of US$1.0009 versus US$0.9860 late Friday in Australia.
Spanish Finance Minister Luis de Guindos said Saturday the European Union will grant Spain a loan of up to EUR100 billion that the government will funnel to banks that need capital. Euro-zone finance ministers said they welcomed the Spanish step, saying the sum “must cover estimated capital requirements with an additional safety margin.”
The news is “positive as it’s just another ring-fencing of the whole contagion fear aspect,” said Auckland-based HiFX Senior Trader Stuart Ive. He added, however, that “it’s all about timing” and the EU has likely decided to act given the proximity of the Greek election this Sunday and its uncertain outcome.
The Australian dollar also benefited from the Spain news, but ASB Economist Jane Turner said thin liquidity due to a public holiday in most Australian states meant moves were likely to be choppy. She said recent strong data in Australia have meant that investors have pared back expectations of further rate cuts “which is one factor that is going to continue to provide the Australian dollar with some support this week.”
But while positive sentiment will likely continue for the next few days, Ms. Turner said “we are expecting it to remain relatively short-lived as by the end of the week we are expecting the market focus to return back to the Greek elections.”
A mixed batch of Chinese data over the weekend, which showed slower inflation and sluggish industrial production but strong readings on exports and imports, soothed concerns about an imminent hard landing in China’s economy.
TD Securities’ head of Asia-Pacific research, Annette Beacher, said the Chinese data don’t reflect an economy in crisis, but were likely weak enough to encourage the People’s Bank of China to ease monetary policy further. She predicts another 150 basis points of cuts to banks’ reserve requirement ratios in the second half of the year, complemented by at least two more 25 basis point cuts to the key policy rates.
While on the day “easing fears of European contagion and the likelihood of gains in Asian equities should keep risk-sensitive currencies perky” the focus will soon shift to Greece, said Wellington-based BNZ FX Strategist Mike Jones.
At 0020 The euro was at US$1.2631 and the Australian dollar was at US$0.9981.
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