The Australian dollar fell apart after the Reserve Bank of Australia slashed interest rates again this year; underscoring worries about the global economy and a deteriorating outlook for international trade. The sudden move is also putting other growth-linked currencies under pressure as investors quickly look over monetary policies in nations that rely heavily on export demand, especially from China. Still, market sentiment outside of the Asia-Pacific region is looking a little more encouraging after robust US manufacturing data helped dampen safety plays. The euro rose from near three-week lows against a weaker US dollar and may add to those gains amid discussions that Spain is preparing to apply for a bailout. The euro also pushed hard against the British pound with sterling looking a little jaded after weak manufacturing data from the UK. Sterling will be hoping that Spain remains the centre of attention which may just allow the UK currency to shrug off what is expected to be another disappointing report on Britain’s construction sector.
Sterling
The British pound is looking a little shaky again on evidence that Britain’s manufacturing slump deepened in September, weighing on hopes the UK economy was making improvements towards a return to growth. The data implies that as long as Europe struggles to overcome its debt crisis, the Bank of England may have little option but to continue using quantitative easing to help support the UK economy.
US dollar
Buy orders for the US dollar eased after Ben Bernanke said that US interest rates will remain at extremely low levels long after the US economy normalises. The Federal Reserve’s chief reminded investors of a very dovish long-term monetary policy stance which gives investors little incentive to hold onto US dollars for an extended period. Yesterday’s surprisingly good US economic data also troubled the greenback by encouraging investors to lighten up on defensive positions.
Euro
The euro rose sharply soon after falling close to three-week lows against the US dollar, with traders perhaps stepping into the market after seeing a perfect opportunity to refill run-down euro accounts. However, the single currency remains vulnerable as uncertainty about Spain’s fiscal future grows. Media reports suggest that Madrid is preparing to ask European authorities for a bailout, which could put an end to a saga which has dragged on for a number of months now. Yet investors still appear guarded against the euro, unsure about how a bailout for the eurozone’s fourth biggest economy will develop considering that Greece’s rescue plan is still under a cloud of uncertainty.