It has been clear for a while that Spain would need outside help to refresh its battered banks, many of which are weighed down by loan losses. But the Spanish government spent longer than usual on the denial and anger stages of the process. Now it is bargaining. It wants the EU stability fund to lend money directly to the troubled banks, so keeping the loan off the country's books and avoiding the unpleasantness of externally-imposed austerity.
The EU might be inclined to bend the rules and help out were it not for the implacable opposition of Germany. So there is still no solution for Spain and there are ten days to go before the future of Greece becomes clearer after the election. Investors cannot be certain how it will all eventually pan out but the brief relaxation they appeared to enjoy has run its course and they are keeping the euro at arm's length once more.
The dollar's unique selling proposition is that it is not a euro. It has been going up despite deteriorating US economic data. Last week's figures showed weaker house prices, consumer confidence and factory orders. The employment report included an uptick in unemployment and fewer new jobs. Appetite for the dollar seems to be driven entirely by investors mistrust of the alternatives but that does not make it misplaced. The dollar could have further to rise if Euroland cannot get its act together.
For no particular reason the Canadian dollar kept pace almost exactly with the euro and the Swiss franc over the ten-day week. It was no more than coincidence and is unlikely to be repeated. Keeping its benchmark interest rate steady at 1% for a 22nd month the Bank of Canada hinted the next move would be upward if growth and inflationary pressures continue. Investors saw the comment as positive despite the many potential obstacles to growth that lie ahead.
In a week of unusual price action, perhaps caused by London's absence from the game on a four-day weekend, there was little to choose between the antipodean dollars and the US dollar. The Australian economic news was all over the place with, new home sales rising 6.9% in April while building permits for the same month fell by -8.7%. The Reserve Bank of Australia lowered its Cash Rate to 3.5% and there could be another cut in two or three months' time. And then there was the figure for first quarter economic growth. It showed 1.3% expansion, more than double the forecast and twice as much as Q4 2011. The confusion continues...
Of the two antipodeans it was the Kiwi dollar that led the way, if only by a fraction. It did so mainly because of sentiment and despite the hard economic evidence. NZ building permits fell by -7.2% in April after rising by nearly a fifth the month before. Business confidence was eight points lower at 27.1. The terms of trade index fell to -2.3%. But investors fancied that moves in Europe would head off the risk of a euro breakup and that made them better disposed towards the NZ dollar. That might not be the case this week.
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