Asia declines on Chinese slowdown concerns

USDJPY R 2: 93.70 R 1: 92.80 CURRENT: 91.10 S 1: 89.00 S 2: 88.00

GBPUSD R 2: 1.4950 R 1: 1.4725 CURRENT: 1.4491 S 1: 1.4400 S 2: 1.4250

AUDUSD R 2: 0.8730 R 1: 0.8590 CURRENT: 0.8397 S 1: 0.8380 S 2: 0.8130

Market Brief

The EURUSD fell to 1.2264 while EURJPY traded at 111.65 extending its longest monthly decline in 10 years on concerns Europe's efforts to reduce budget deficits will derail the region's economies as the credit crisis shakes the banking system. The EUR fell before a report forecast to show Italian unemployment increased to 8.9% (prev. 8.8%) and after an EU consumer sentiment index fell to 98.4 (prev. 100.6) yesterday. The ECB warned yesterday of more bank losses as the region's credit crisis spreads. The ECB said in its bi-annual Financial Stability Report yesterday that EU banks may see another 90 billion EUR in net write downs this year on loans and securities. The lenders will need to make provisions for losses of about 105 billion EUR next year, which may be even bigger amid heightened sovereign risks and possible second-round effects of the fiscal consolidation, the ECB said. Asian currencies declined on concerns that a slowdown in China may cloud prospects for global growth and sap demand for higher-yielding assets.The AUDUSD fell to 0.8394 as home-building approvals dropped 14.8% (prev. 16.8, exp. -5%) in April for the third month this year, adding to signs the RBA's interest-rate increases is damping demand for dwellings. Falling home-building approvals give RBA Governor Glenn Stevens scope to keep interest rates unchanged today at 4.5%. Australian manufacturing growth declined 3.5 points to 56.3 in May from the fastest pace in almost eight years, as new orders fell following the RBA's decision to boost borrowing costs last month for the sixth time since October while inventories fell 8.8 points to 52.1 and new orders slipped 4.9 points to 54.6. Australian retail sales increased 0.6% (prev. 0.8%, exp. 0.3%) in April at double the pace estimated by economists as consumers boosted spending on food and household goods. GDP growth probably slowed to 0.6% (prev. 0.9%) according to a report due tomorrow.

Chinese PMI manufacturing expanded at a slower pace in May, falling to 53.9 (prev. 55.7, exp. 54.5), adding to signs that growth may moderate. A government crackdown on property speculation is cooling the economy by damping sales and construction, while Europe's sovereign-debt crisis could exacerbate a slowdown by cutting export demand. China may delay raising benchmark interest rates or letting the Yuan appreciate against the USD even after the economy grew 11.9% in Q1. The fall in the headline PMI might be an early sign of a slowdown, but China still faces overheating risks in many parts of the economy. Output fell to 58.2 (prev. 59.1), new orders slid to 54.8 (prev. 59.3) and input decreased to 58.9 (prev. 72.6). The HSBC China manufacturing index fell to 52.7 in May, the lowest since June 2009. Chinese policy makers are trimming stimulus this year after the $1.4 trillion lending that revived growth in 2009. Restraining inflation expectations and keeping housing affordable are two of the government's key goals after urban property prices jumped a record 12.8% in April from a year earlier.