Antipodeans Rebound
The Australian dollar recovered all of yesterday’s losses overnight, despite media reports of another mining project being postponed. Other than that, news and economic dataflow was extremely light. EURUSD continues to trade sub-1.30 however, weighed down by Thursday’s weak French PMIs. Even a successful Spanish debt auction was not enough to trigger a rebound – given it implies no urgent need for an aid request to the EFSF. Nevertheless, there appears to be some movement on that front – the Financial Times reported that EU officials are working with the Spanish government behind the scenes on the details a new economic plan for Spain, which could eventually pave the way for a formal aid request. Details are vague but it appears that the Spanish government will submit a structural reform plan to the EU by next Thursday, hoping that the EU’s “pre-approval” will help it avoid taking tougher austerity measures when it finally requests EFSF aid. In the US, several regional Fed presidents had their say: Rosengren expects QE3 to cut the unemployment rate by a “couple of tenths” of a percent; Lockhart noted that job growth of 150k per month is needed to cut the unemployment rate. Interestingly, Kocherlakota (traditionally one of the more hawkish members of the FOMC), said that he would want rates at 0% until unemployment rate falls to 5.5% − a process which he said could take 4 years. The increased focus on employment will make USD more sensitive to payroll numbers in the coming months, and even yesterday’s weaker than expected jobless claims report had a material currency impact. Claims last week came in at 382k − above the 375k consensus and taking the four-week average to 378k (the highest since June 30).
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank