Aussie's Sell-Off Continues After Trade Data

Aussie remains the biggest loser this week as the post RBA cut selloff extends today. Further selling was seen today after Australia posted some bad trade data. Trade deficit widened much more than expected to AUD -2027m in August, comparing to expectation of AUD -685m. Also, prior month's deficit was also revised from AUD -556m to AUD -1530m.

Australia has been in trade deficit for the whole year of 2012 so far. Today's data also showed exports dropped a massive -12.3% while imports rose 5.4%. Falling commodity price and weak demand from China were the key drivers. Even after yesterday's surprised rate cut, RBA is still expected to lower rates further. Markets are pricing in an 80% chance that the OCR will be at 2.75% or lower by February. The aussie will remain soft broadly.

Moody's said that it's still reviewing Spain for a possible downgrade to its Baa3 debt rating and will announce the results this month. In a separate report, Moody's warned that "if market participants are skeptical about the stress test, negative sentiment could undercut the government's efforts to fully restore confidence in the solvency of Spanish banks."

It estimated that banks would require as much are EUR 105b to recapitalize banks, nearly double of Oliver Wyman's estimate. There were still rumors flying around that Spain would formally request a sovereign bailout soon. But Prime Minister Rajoy clarified that he has no imminent plan for requesting for financial assistance.

According to a draft obtained by Bloomberg, Troika is set to report to IMF that good progress were made in Greece . Ireland's program remains "well on track" and Portugal is "broadly on track." Spain was also described as being "well on track" with the implementations for conditions for the banking bailout.

Greek officials expressed optimism on striking a deal with Troika by the end of the week but Finance Minister Stournaras remained noncommittal. It's reported that Troika doesn't have a unified stance on the Greece issue. IMF prefer Greece to cut the debt further to make up as it's hugely off track from the terms of the bailout but Europe prefers to give Athens more time.

Looking ahead, services data will be the main focus today. Eurozone services PMI is expected to be unrevised at 46 in September's final reading. UK PMI services is expected to drop slightly to 53 in September. US ISM services is expected to drop slightly to 53.2 in September. Also, US will release ADP private employment report and is expected to show 149k growth in September.