Exchange Rate News: Risk appetite makes a comeback

World stock markets are trading just shy of a four year high this morning as the overnight data from China shows that Chinese economic growth has accelerated for the first time in two years in the last quarter of 2012 as the government’s stimulus measures make an impact.

The data showed that Chinese gross domestic product expanded at an annualised rate of 7.9% in the last three months of 2012. similarly, industrial production rose by 10.3% on an annualised basis in December. Retail sales also performed better than expected, rising by 15.2%, the largest rise since March.

With the data earlier on this week showing better than expected growth from the US, the two biggest economies in the world have registered strong starts to the year and this is driving stock and commodity markets forward and helping the risk based currencies like the Canadian, Australian and New Zealand dollars and South African Rand forward and subduing demand for the safe haven currencies like the US dollar, Japanese Yen and Swiss Franc.

In Europe, the Spanish Treasury held a successful Spanish debt auction yesterday with reasonably strong demand registered. Following successful auctions in Italy and Portugal earlier on, it is yet another sign that euro zone concerns are easing.

In Germany, finance minister Wolfgang Schaeuble said yesterday that the problem of high indebtedness is not limited to the crisis-hit euro zone and that the situation in the UK and the US is worse. In a speech to the German Parliament, Schaeuble also said he that he was worried by the policies pledged by the recently elected government in Japan which has vowed a big increase in spending to bolster their economy but threatens to create an outbreak of the so called ‘currency wars’ as each country tries to gain a competitive edge for its exports by in effect devaluing their currency through the easing of monetary policies.