Euro’s rally to $1.26 on Wednesday faded after news of Spain’s downgrade by Moody’s. The credit rating was cut by three notches from A3 to Baa3 with warning for further downgrades. The ratings agency cited that the Spanish government has very limited access to the international debt markets.
EURUSD opened in Asia at 1.2555, moving very little during the session. Focus is on Italy’s 10-year bond auction today. This is a key event because Italian bond yields have been rising recently and there are fears that the country may be the next in line to require a bailout. Spain requested aid to bailout its troubled banks earlier this week. Meanwhile Greek elections on Sunday are causing concern of a deeper crisis in the euro zone if there is an unfavourable outcome which could set Greece on path to exit from the euro.
GBPUSD opened Asia at 1.5503, consolidating losses during the session after a sharp drop yesterday. With lack of key domestic data on the economic calendar today, sterling will take direction from external news.
USDJPY traded sideways between a range of 79.30 and 79.46. Dollar is weaker after yesterdays poor US retail sales data showing the worst decline in two years. The greenback is expected to remain lower today ahead of some key data on inflation and unemployment claims. Weaker data could fuel speculation that the Fed will introduce more QE to stimulate the economy. This measure usually weakens dollar further. Meanwhile, the Bank of Japan policy meeting is tomorrow, and there is also speculation that the BOJ might ease policy.
Aussie remained supported at $0.9928 after reports that a Chinese official said the PBOC could cut rates again to boost slowing growth in China. This is positive for the AUD since China is a major trading partner for Australia and would benefit from a stronger Chinese economy.
Kiwi gained 0.6 percent against the greenback after the Reserve Bank of New Zealand kept interest rates on hold at 2.5 percent. NZDUSD climbed to 0.7779.