ECB rejuvenates risk trade; A$ coattails Euro higher

After a week of solid headwinds the Aussie dollar managed to regained some composure overnight, coinciding with a strong performance from the Euro in the ensuing period of the ECB policy decision. As widely anticipated, the ECB held benchmark interest rates steady at 0.75 percent with President Mario Draghi reiterating the central bank’s pledge to buy the debt of Europe’s troubled periphery. “We are ready to activate bond purchases and we have a fully effective backstop. Now it’s in the hands of governments,” noted Draghi in the post decision the press conference. Draghi’s comments rejuvenated the Euro’s appeal with a break to the upside of $US1.30 following the press conference. Risk currencies coat-tailed the Euro higher with the Aussie dollar rising to highs of 102.75 US cents after slumping to 1-month lows of 101.81 in yesterday’s domestic session.

With the ball firmly in Spain’s court, market participants are waiting in anticipation for critical feedback from Prime Minister Mariano Rajoy. Investors are clearly hoping Spain’s budget reforms and bank stress test report released last week will pave the way for a formal request for financial aid. Both of these a considered critical housekeeping before financial assistance will be requested, in-turn unlocking the ECB’s bond market intervention program. Until now, Prime Minister Mariano Rajoy has displayed reluctance to any formal request for aid, which effectively places Spain at the mercy of the troika at the expense of the country’s sovereignty. Earlier this week Rajoy rejected reports a bailout request may come as soon as this weekend.

Although sentiment barometers reflected a largely positive tone, the release of the Fed’s policy decision minutes failed to keep the momentum alive, reflecting a dovish assessment of domestic conditions. The minutes also flagged “possible intensification of strains in the euro zone, with potential spillovers to U.S. financial markets and institutions and thus to the broader U.S. economy.”

The next key directive for global markets will be the release of non-farm payroll data this evening which is expected to see the U.S economy create 115,000 jobs in September from a previous 96,000. With no scheduled data on the domestic docket, we anticipate regional equities will provide the direction for risk currencies throughout the local trade. The Bank of Japan’s policy decision will also be closely watched, but we anticipate no change to interest rates or additional monetary easing. Bank of Japan Governor Masaaki Shirakawa will also hold a briefing later this afternoon. At the time of writing the Australian dollar is buying 102.4 Us cents – tentative support is noted at 102.35 US cents with 102-figure likely to contain any losses in the domestic session before the European handover.