Euro Close to Two-Year Lows, Chinese Economy Under Performs
Data was recently released from China that showed its imports growing at half the expected rate for the month of June. Investors are concerned that this is a sign that the Chinese economy is about to experience an economic slowdown. As Australia’s leading trading partner, the economy of China has impacted the Australian dollar. The Australian dollar was last at $1.0236 for the day and was down 0.3 percent. If China’s economy continues to fall, it could have a wider impact than just Australia. With the world’s second largest economy, China has a huge impact on the world’s export and commodities market.
Euro Close to Two-Year Lows
The euro dropped against the dollar on Tuesday. A meeting between the top finance ministers in the European Union failed to reassure investors about the Eurozone fiscal crisis. Finance ministers decided to give Spain until 2012 to reach its debt reduction goals and allotted the nation extra aid for the debt-ridden banks.
After news of the agreement came out, the euro almost reached two-year lows against the greenback. The euro dropped to $1.2261 which is uncomfortably close to the two-year low of $1.2255 that it reached on Monday. Against the yen, the euro slipped to 97.29 which marks a five-year low. Most recently, the euro was trading at 97.54 yen which is still down 0.5 percent for the day.
Despite the finance ministers’ best efforts, investors are flocking away from the euro. Analysts believe that the finance ministers are not doing enough and should use more of the Eurozone’s rescue funds to prop up the bond markets. Data from China also caused a level of uncertainty within the European Union. Mixed data from China has made investors increasingly concerned over the fate of the world’s economy. With dismal job data from the United States, a drop in the Chinese markets would make the world’s two largest economies enter a recession.
More bailout money can be injected into the European markets if a German court rules in favor of the plan. The decision could take anywhere from a few days to a several weeks. The constitutional court in Germany is planning on hearing a complaint about the rescue fund and budget rules. Most analysts believe that it will take a few weeks for a ruling to leave the court. Until a ruling is issued, investors will be hesitant to place additional funds in the Europe. The German courts have achieved a well-known reputation for not being pro-Europe and the ultimate outcome of the complaint is uncertain.
Spanish and Italian Bonds Ease
Spanish bonds dropped below 7 percent on Tuesday. Although the ten-year bond rates still remain high, 7 percent is viewed as the point when a bailout is necessary for Eurozone countries. Since the European Central Bank cut interest rates there has been an increasing amount of investor concern over the Spanish and Italian bond markets. Analysts believe that the euro will remain under pressure for the near future. Until the rescue funds can be activated, a true bailout cannot be possible.
United States Dollar Rallies
The United States dollar is currently at a two-year high of 1.2240 versus the euro. Analysts believe that 1.2150 will be the rate where the greenback will reach resistance. The greenback also recently hit 0.9817 Swiss francs. This level marks the highest the United States dollar has been against the franc since December of 2010.
Against the pound, the United States dollar fell to a four-day low of 1.5551 during early morning trading. It managed to rebound by the middle of the session to reach 1.5480. It also fell 0.3 percent against the Japanese yen to reach 79.36.
Canadian Dollar Rises
After the European finance meeting, the Canadian dollar gained against the euro to C$1.2498. Yesterday, the loonie reached C$1.2466. This marks a two-year high against the euro and is remarkably close to the loonie’s record high. The economy in Canada is forecasted to increase by 2.1 percent this year. In comparison, the United States economy is expected to grow by 2.2 percent this year. If the forecasts are accurate, this will be the first time Canada’s economy grew less than the United States since 2005. Currently, the Canadian dollar is trading at C$1.0193 against the United States dollar.