By Raiko Shareef
NZ Dollar
The USD lost ground after yesterday morning’s FOMC minutes, but has recovered its poise since then. Last night was marked by mixed messages about the outlook for Greece reaching a resolution with its creditors. The USD is stronger against all its G10 peers, with the broad Bloomberg Dollar Spot Index up a healthy 0.4%.
The minutes hinted that the majority of FOMC members were beginning to favour a modest delay to the time at which they would raise the Fed Funds Rate from zero. That saw the USD sold across the board. These losses have been reversed over the course of the past 24 hours though, with many analysts pointing out improvements in the US economy since the January meeting. Most importantly, the pace of jobs growth has kicked to new heights, and wages are showing tentative signs of upward pressure.
Overnight, headlines regarding Greece’s debt standoff drove swings and roundabouts in market sentiment. First, Greece had reportedly requested a six-month extension of the bailout programme, but with some significant watering-down of its strictures. This saw EUR/USD gain rapidly to its session highs of 1.1450. But later in the session, news broke that Germany had rejected the proposed extension.
This sets the stage for another boisterous meeting of Eurogroup finance ministers this evening. It is unclear where the middle ground will be found, but markets seem very confident that a deal will be struck eventually. The sell-off in EUR after the German rejection was very restrained. This suggests to us that the upside potential for EUR on news of a deal would be modest, and likely capped around 1.16. On the other hand, a decisive failure would see EUR/USD back to testing the big barrier at 1.10.
NZD/USD has largely kept itself out of the fray over the past 24 hours, maintaining its station above 0.7500. The post-FOMC sell-off in the USD saw NZD break above 0.7570. We continue to think that levels approaching 0.7600 offer good risk-reward for entering a strategic short position.
NZD/AUD broke above 0.9700 for the first time, as the headlines suggested that rating agency S&P considered Australia’s AAA-rating at risk, because its budget woes. But as is too often the case, the headlines were more sensationalist that the story itself.
In fact, the S&P sovereign analyst stated that there is no immediate threat to the AAA rating. As a result, NZD/AUD has come off its highs, and sits back near the magnetic 0.9650 level. We would not be surprised if we see the cross hit even higher levels, but remain sceptical of parity on a sustainable basis.
Tonight, the series of PMI releases from Japan, Europe, and the US will inform market movements, but will be superseded by any definitive decisions out of Greek debt negotiations.
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