In US trade, risk currencies such as the euro and the Aussie backed off recent highs as traders tempered expectations of imminent central bank action and seemed happy to book some recent gains.
The looming prospect of additional stimulus measures, particularly from the ECB and the Fed have seen equities, risk currencies and commodities all enjoy modest gains over the past fortnight, but as has been the case over the last few years, too much of a good thing rarely lasts.
Traders now seem tuned into this. Overnight, the ECB's Christian Noyer said the Central Bank is determined to bring down the excessive borrowing costs hurting Spain and Italy and should be ready to intervene decisively in bond markets very soon. The comments tie in with the Bank’s August monthly report, where it expects inflation to decline further over 2012 and remain below 2.0% in 2013. Thus, with undoubted scope to provide additional stimulus and a seeming will to provide it, it is merely a matter of the form and the timing of the package that the market is waiting on. In Greece we heard Deputy Finance Minister Christos Staikouras comment that the government would present its budget plan - to reduce deficits by €11.5 billion - to the EU by September 14 and hoped that the next tranche of bailout funds would come immediately after a positive review by the Troika.
It is believed a bulk of the savings will come from salary, benefits and pension cuts and by reviving the 'labour reserve plan' that includes laying off 40,000 public servants. Having risen above 1.06 earlier in Asian session after a stronger-than-expected Australian employment report, the AUD ran into some profit taking after data from China showed that industrial production slowed to 9.2% year-on-year (y/y) (versus 9.7% consensus), while retail sales also slowed to 13.1% y/y (versus 13.5% expected). Chinese trade balance data to be released later today is likely to influence sentiment towards the AUD in afternoon trade. In early Asian trade the euro and the Aussie are at 1.2295 and 1.0568 respectively, both modestly below where they ended the US session.