Euro Dips Lower After Spain Downgrade, Aussie Lifted By Job Data

The euro extends its correction against other major currencies after S&P downgraded the country's sovereign credit rating to BBB-, from BBB+, placing it much close to junk level. In addition, the long term rating was also assigned a negative outlook. The rating agency noted that the outlook "reflects our view of the significant risks to Spain's economic growth and budgetary performance, and the lack of a clear direction in eurozone policy." And, the "deepening economic recession is limiting the Spanish government's policy options."

It also noted that "the capacity of Spain's political institutions (both domestic and multilateral) to deal with the severe challenges posed by the current economic and financial crisis is declining." Markets are expecting Moody's, which placed Spain at BAA3, to follow soon.

Shortly before S&P's announcement, French President said at a joint press conference with Spanish Prime Minister Rajoy that "France and Spain share the same concept of what needs to be done." Hollande pledged to "move forward as much as possible" on issues that include creation of the banking union and the role of ECB in bank supervision. Hollande was optimistic that with these questions solved, there will be "different growth figures than predicted." Rajoy said he's confident that there will be "formulas so that Greece can respect its commitments and so the others can take timely decisions that allow Greece to remain in the euro."

The latest Beige Book survey by the Fed showed that the US economy "expanded modestly," compared with the reference "expanded gradually" used in the August report. While most districts showed modest growth, the New York District had "a leveling off" in economic activity and Kansas City showed "some slowing in the pace of growth."

Overall, improvement was seen in the housing market and the automobile sector. Consumption was "generally flat to up slightly" while the manufacturing sector was "somewhat improved." The report appeared to be in line with Fed Chairman Ben Bernanke's earlier comments that the pace of economic growth is insufficient to bring the employment conditions back to normal. More in Beige Book Said US Economy Showed Modest Expansion.

Australian dollar was lifted today by stronger than expected employment data. The job market grew 14.5k in September, much better than consensus of 5.1k. That also made up for August's revised -9.1k loss. Unemployment rate, though, rose more than expected to 5.4%. While the data showed that the labor market had remained resilient, it shouldn't reduce much chance of further rate cuts from RBA.

Elsewhere, Japan machine orders dropped -3.3% mom in August, household confidence dropped to 40.1 in September. German CPI was finalized at 2.0% yoy in September. ECB will release monthly bulletin in European session. In US session, Canadian trade balance, new housing price index, US will release trade balance, jobless claims and import price index.