AUD Still Heavy
The Australian dollar had another difficult session overnight, as press coverage of the continuing decline in iron ore prices turned increasingly pessimistic. Even a stronger-than-expected capital expenditure report for Q2 failed to offer any significant support. Meanwhile, the meeting between Germany’s Chancellor Merkel and China’s Premier Wen produced a few euro-positive headlines as Europe walked in. China’s Premier Wen said China would continue to invest in Eurozone debt, according to the Wall Street Journal, although we note it was not clear whether this implied any net increase in existing exposures. Wen went on to say that, although he is still worried about a worsening of the Eurozone crisis, he is more confident after hearing what Merkel had to say during their meeting. The Financial Times reports that the ECB continues to work on the finer details of the newly-proposed bond purchasing scheme, but some operational details are still undecided, and full agreement on these may not be reached in time for the Sept. 6 policy meeting. According to the article, the remaining bones of contention are the question of conditionality, whether to set a formal yield target, and how to measure the ‘convertibility risk’ embedded in bond prices which is associated with fears of a euro breakup. In the US, July pending home sales rose 2.4% m/m and 15.0% y/y, beating consensus forecasts for 1.0% m/m and 11.1% y/y, respectively. Q2 real GDP growth was revised up to 1.7%, as expected. Ahead today, Italy auctions EUR7.5 bn bonds.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank