Commodity Currencies Higher

Commodity currencies (AUD, NZD, CAD) are outperforming on hopes that China may take steps to support the economy and despite a downgraded growth outlook by the International Monetary Fund (IMF). The IMF reduced its projection for global growth to 3.3% this year (prior 3.5%) and 3.6% in 2013 (prior 3.9%) in its World Economic Outlook report. The report noted that it sees “alarmingly high” risks from the policy response regarding Europe’s debt crisis and the US fiscal cliff – issues that will be discussed at the Tokyo meeting later this week.

AUD outperforms on PBoC comments
The AUD is outperforming after People’s Bank of China (PBoC) Gov. Zhou expressed concern over external headwinds and suggested taking pre-emptive measures. This helped to boost Chinese equity markets as well as commodity prices such as iron ore which is constructive of a higher Australian dollar. AUD/USD rebounded and is currently higher on the day but found resistance around 1.0250 where the 100-day simple moving average (SMA) comes in.

EUR softer as officials discuss crisis
In Europe, headlines continued to flow from key officials. Issues discussed included Spain, Greece, and bank oversight. Spain’s Guindos said that the decision to apply for a bailout is “very sensitive” and that the government will take the interests of both Spain and the euro area into account when deciding. German Chancellor Merkel visit Greek PM Samaras and she reiterated that nothing will happen overnight and a tough route is needed for success. Merkel said that she wants Greece to remain in the euro, and Samaras said that her visit shows a break in Greece’s isolation. Samaras said that efforts are continuous and that structural measures must still be undertaken.

For now, it seems that European officials are managing expectations and underscoring the fact that it is going to be a long path out of the current crisis. The troika is still conducting its review on Greece and markets continue to speculate on whether or not Spain will ask for assistance. We expect the euro to trade softer ahead of these next key developments and consolidate between the 1.28 to 1.31 range.

Data Watch
There is little economic data due out of the upcoming NY session with the UK’s NIESR GDP estimate for September and October US economic optimism due out shortly.

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