The USD was slightly weaker in a thin Asian session, as volume remains light due to the Lunar new year. The AUD/USD opened in Sydney at 0.8880, but quickly climbed to 0.8960 as risk sentiment improved and the 0.8915 horizontal resistance gave-way (triggering stops). The RBA minutes of Feb 2nd policy meeting provided no real insight into the timing of the next hike. The AUD bulls (us) found a glimmer of hope in the fact that the reference ‘finely balanced’ remained indicating that strong data leading up to March could sway members. The RBA is still accommodating and the expectation of further inflation assumes “gradual further increase in the cash rate” but the timing is uncertain. Currently, the market is not pricing in a hike in March but if data prints stronger than expected, we thing there is a good shot at another 25bp in March and keeping the AUD well supported. Separately, in New Zealand, Q4 producer prices were weaker than expected, with input prices rising only 0.3% q/q vs. 0.5% expected, -1.1% prior, while output prices fell -0.4% q/q vs. 0.4% exp, -1.4% prior.
FX markets are still driven by the events surrounding Greece and the EU, which have been weighting on the EUR. The Eurogroup of 16 Eurozone Finance Ministers met overnight but nothing but rhetoric was produced. Greece ‘s Finance Minister Papaconstantinou said that if detailed measures are announced after the meetings, this could halt “markets attacking Greece “, while Finland’s Finance Minister stated that EU rules were “against a bailout” and any aid would have to be a bilateral agreement between Greece and members. He also suggested that Finland would not help and “Greece must get the money it needs from the market.” Also, the Austrian Finance Minister stated that any statistical irregularities in Greece’s economic data must be cleared up or risk further hurting the EUR credibility. Recent articles regarding the use of derivative contracts in Greece to conceal deficit spending have opened a new and worried dimension to this whole situation. Another light day on the economic data front. We continue to see a stronger USD as persistent sovereign credit problems will weigh on risk appetite specifically the EUR. Today’s Ecofin meeting involving all 27 EU Finance Ministers should provide a wealth of quotes but little substance on the EU situation.
Via ACM
