Euro softens on data and ratings

The Euro eased back overnight against the US dollar, as one of the more peripheral rating agencies reviews the credit rating of Spain, Italy Greece and Ireland. Also weighing on the joint currency was German industrial production data, which was weaker than expected, although there was positive news when their credit was assessed. In the UK the Bank of England cut its growth forecast, but signaled that they were unlikely to cut their rate further. Finally in Australia, home loan data showed that the recovery in the housing market may be picking up.

The Economy Ministry in Germany confirmed that the country’s industrial production was lower in June, showing that the debt burden is also affecting even the strongest members of the shared currency. Compared to May, where production increased by 1.7%, it decreased by 0.9% as exports fell by 1.5% compared to a 4.2% climb in May. The fall was in the main, due to a slide in orders from other member countries. However, Standard & Poor’s reaffirmed Germany’s AAA rating due to its strong fundamentals and kept the outlook as stable. S&P did though lower Greece’s outlook to negative and kept its rating on their bottom rung of CCC, as they battle to meet the demands for the next bailout.

Canada’s largest rating agency, Dominion Bond Rating Service, the final rating service the ECB uses after the main trio, downgraded Spain two levels to A (low) whilst Italy was downgraded by one notch to A. The agency did however, keep Ireland at A and stated there were ‘tentative signs of stabilisation’. In the statement accompanying the ratings, it read ‘it is clearly in the interest of the core of Europe to support the whole of the Eurozone, we are assuming that there will be continued support of most, if not all the members of the Eurozone indefinitely, otherwise these credits would be much lower because they are under major pressure’.

Finally in Australia, home loan figures rose significantly in June, as buyers take advantage of the new lower cash rate set by the Reserve Bank of Australia. Since November, the RBA has cut the rate by 1.25% making it much more attractive for people to get a mortgage. The Bureau of Statistics showed that the number of home loans approved jumped 1.3% to A$13.8 billion in June compared to a 1.2% fall in May. The figure adds weight to the belief that the housing market has bottomed out and is on the road to recovery after 3 years of negative data and will encourage the RBA to hold rates at this level rather than looking to cut further for the time being.

Today, we have both New Zealand and Australian employment data out, the currencies are relatively unmoved from Wednesday morning, with the Kiwi still around .8150 against the USD whilst the Aussie is 20 points higher at 1.0570. The Kiwi continues to look attractive to importers from Europe, as it remains near its record highs of .6600, as it does for exporters to Australia with the AUD remaining at .7710.

Recent cuts to the cash rate have encouraged lending