Article by AlgosysFx Forex Trading Solutions
An affirmation by Moody’s of Spain’s investment grade and buoyant economic data from the world’s largest economy are foreseen to buoy risk appetites today, debilitating the US dollar alongside the commodity-linked Australian dollar. With a gauge of homebuilder confidence inclining to a more than six-year high this month, optimism for the housing market is set to continue as Housing Starts and Building Permits are believed to have increased in September.
In a development that provided the markets a lift earlier today, Moody’s Investors Service confirmed Spain’s government bond rating one notch above junk territory as support from the Euro-area and European Central Bank should allow Spain capital market access at reasonable rates. Moody’s believes that the threat of Spain losing market access has been slashed by the willingness of the ECB to undertake purchases of government bonds. The firm also noted that the country will likely apply for a credit line from the European Stability Mechanism, which is likely to sustain demand for Spanish government bonds.
Meanwhile in the US, the Federal Reserve reported that manufacturers produced more appliances, clothing and construction supplies in September, a sign that the ailing factory sector is regaining momentum. Industrial output inclined by 0.4 percent last month, recovering from the 1.4 percent drop in August and doubling expectations of a 0.2 percent rise. Despite the global slowdown hurting exports, the report suggests that the manufacturing sector is showing resilience. Meanwhile, the housing market is showing more pronounced positive strides. The NAHB housing sentiment index climbed for a sixth straight month from 40 points to 41 points this month, the highest reading since June 2006.
More housing reports are slated to provide confidence that the sector that led to the recent downturn is on a sustained improvement. The US Census Bureau is awaited to report that builders broke ground on an annualized 770,000 homes in September, potentially its best reading since October 2008. Meanwhile, in a positive sign of healthy home construction ahead, Building Permits are deemed to have edged up from an annualized 800,000 to 810,000 last month. Housing demand has been on the rise recently as ultra low mortgage rates and a pick-up in consumer confidence continue to spur buyers to enter the market. With the real estate sector set to stimulate US economic activity, risk-on trades are presumed to weaken the Greenback today. As such, a long position is recommended for the AUD/USD.
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