Euro consolidates ahead of key event risk; A$ maintains downside trajectory

Pessimism surrounding China’s growth prospects continued to pressure the Australian dollar with latest industrial profits sliding 5.4 percent in July from a year earlier, representing the fourth consecutive month of negative growth. The local unit continued is slow grind lower falling to fresh 1-month lows against the U.S dollar. The data pulse from China has been far from inspiring with recent economic releases suggesting China’s days of expeditious growth have taken a south-bound turn. Recent data points have shown shrinking exports amid subdued domestic demand, in addition to sub-par bank lending activity. While a moderation in export activity reflects the persistent drama’s resonating from the Euro area, sub-par imports to the region may suggest recent easing initiatives by the Peoples Bank of China have yet to infiltrate domestic demand or simply may not be enough. Recent consumer price data may have shown an inflation environment worthy of further policy easing; however it’s also clear the world’s second largest economy faces considerable challenges unrelated to domestic policy, as Eurocentric concerns continue to slow the pace of exports to the region. The latest trade data showed exports to Europe slumped 16 percent in July from a year earlier. Meanwhile on a tour of one of China’s largest exporting province’s Guangdong, Premier Wen Jiabao said “Stabilizing economic growth is the key task for second-half economic work” while stating “the third quarter is a crucial period for realizing full year targets on export growth.”This now places further pressure on government and monetary authorities to concentrate on boosting growth from a domestic perspective, in light of the unwavering anxiety from the European region in particular.

Meanwhile, markets from both sides of the Atlantic remain transfixed on the prospect of near-term central bank policy action with hopes of ECB intervention underpinning gains across European equities overnight, despite the latest German IFO business climate release falling to its lowest level since March 2010. Business conditions fell to an index level of 102.3 in August, from a previous 103.3, raising further doubts over Germany’s economic prowess amid constant negativity from the periphery.

The Eurocontinued to consolidate last week’s gains against the greenback with the pair falling below 1.25-figure, but on balance the Euro remains a risk currency of least resistance outpacing its commodity bloc counterparts the Kiwi, CADand Aussie. We’re also seeing the greenback reactive to constant change in stimulus speculation with markets assessing each data point and central bank comment ahead of this week’s Jackson Hole symposium. Overnight, Chicago Federal Reserve Bank President Charles Evans took a more hasty position telling reporters in Hong Kong, “I don’t think we should be in a mode where we are waiting to see what the next few data releases bring,” We are well past the threshold for additional action; we should take that action now."

Local economic data due for release today includes HIA new home sales at 11am AEST.

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