Australian Dollar

The Australian dollar (Currency:AUD) and a host of other high-beta currencies are lower against the safer dollar and sterling this morning in line with nervous investor sentiment over Spain. 

The pound to Australian dollar exchange rate is 0.35 pct higher on a day-to-day basis 1.5101.

The pound to New Zealand dollar is 0.47 pct higher at 1.9635.

"Asian stocks have made heavy losses in their past two sessions, which has capped the aussie dollar’s progress for the time being. Opinions that the aussie dollar is overvalued are springing up from all directions now and we agree; we certainly foresee a downward correction for the aussie dollar in the coming weeks," says Richard Driver at Caxton FX.

The falls being experienced by the Australian dollar come despite Australia’s Q2 PPI report which came in slightly stronger than consensus at 0.5% q/q (cons. 0.3%) and 1.1% y/y (cons. 1.0%).

"As a result, our Australian economics team sticks to their forecast for Thursday’s CPI. They expect the headline to come in at +0.6% q/q, but would need to see the core inflation reading fall to 0.5% to trigger another rate cut from the RBA when the board next meets on August 7," says Gareth Berry at UBS.

As mentioned however it is Spain that is driving investor sentiment lower, something that does not favour the high yielding currencies such as the AUD and NZD.

This morning it has emerged that Murcia become the second Spanish region to request state aid following a similar move by Vallencia last week.

Spain's 10-year bond yields remain firmly in the danger zone this morning, at over 7.5 pct, up from 7.275 pct registered on Friday night.

"Should more regions, such as Catalonia, seek aid, it will be "pretty much nailed on that the Spanish government will then eventually need a bailout itself," says Michael Hewson at CMC Markets.

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