AUD Still Weak
Amid limited data releases, the downslide in AUD continued during the New York session as AUDUSD dropped almost by a big figure on Tuesday. Our technical analysts note that the risk is for further weakness and there is little support until 1.0165. Spanish 10y yields dropped by 14bp following Reuters report earlier that Spain is ready to make a formal request for external aid. EURUSD reached the highs of above 1.295 overnight but retreated following Spanish Prime Minister Rajoy’s comments that a bailout request is “not imminent”. Rajoy noted that the regional governments unanimously backed the budget proposals that Spain negotiated with the EU but acknowledged that there are disagreements over the measures needed to cut the deficits and over deciding each region’s share of spending cuts. Meanwhile, Moody’s announced that it is still studying the effects of Spanish bank recapitalization programme, 2013 budget plan and the European bailout mechanism, and that it will make a decision on Spain’s rating this month. With Spanish bond markets still benign, the Spanish government is in no hurry to request for an EU aid in the next Eurogroup meeting on October 8. Germany seems to support this wait-and-see approach to avoid the inconvenience of presenting yet another individual aid request to the Bundestag when it might soon be possible to bundle it together with a parliamentary decision on Cyprus and Greece, too. The Troika team was back in Athens and Greek Finance Minister noted that “talks are continuing” but doubted if the deal could be complete before the EU summit on October18-19. The delays in taking decisions on Spain and Greece will limit the upside of EUR in the near-term, in our view. Our 1m target for EURUSD stays at 1.30. Ahead today, services and composite PMI numbers are due in Europe.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank