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Markets and policy makers get the jitters ahead of US Fed announcements. Greek hardball may backfire

Currencies
Markets and policy makers get the jitters ahead of US Fed announcements. Greek hardball may backfire

By Raiko Shareef

NZ Dollar

The NZD is little changed from its opening level yesterday, sitting just 0.1% higher against the USD at 0.7460.

NZD has kept to a fairly tight range between 0.74 and 0.75 over the past week, kept low by expectations of a neutral RBNZ and a still-hawkish Fed.

As we’ve discussed earlier this week, we suspect the risk is that NZD/USD breaks the range on the topside, and possibly heads to 0.76.

Local trade balance data are also due, and we expect this to reflect a hefty drop in exports.

But these data could well get lost in the wake of the RBNZ and the FOMC.

We pick a wide 0.7370 – 0.7600 range for NZD/USD, given the event risks at play.

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Majors

Broadly speaking, markets were subdued in the run-up to the FOMC this morning. In currencies, EUR and JPY are less than 0.2% away from yesterday’s levels, and in equity markets, the S&P 500 and the Euro Stoxx 600 are up 0.3% and 0.1% respectively. In the context of a volatile start to 2015, these moves are mild.

That’s not to say there haven’t been pockets of explosions. Yesterday, Singapore’s Monetary Authority added to a growing number of central bank surprises, shortly before Australia’s CPI wrong-footed much of the market. Overnight, Greek markets have been hit hard by fears that debt negotiations will not be resolved easily.

The Monetary Authority of Singapore (MAS) announced a surprise easing of policy, outside of its normal meeting schedule. It reduced the pace at which it will allow the SGD exchange rate basked to appreciate. The only other time the MAS has announced outside of that schedule was in 2001, in the wake of the terrorist attacks in the United States. So surprising was yesterday’s move that the sharp drop in SGD inspired (brief) weakness in major currencies against the USD, an unusual result.

In Australia, the market was clearly positioned for a downside surprise in the Q4 inflation report. While the pace of headline inflation did fall faster than expected, it was the relative robustness in ‘core’ measures that wrong-footed the market. The ‘trimmed mean’ measure gained by 2.2% y/y as expected, while the ‘weighted median’ rose by 2.3% (2.2% exp).

This positive surprise saw AUD gain sharply, up nearly 1.4% immediately, taking it above 0.8000. It has since pared those gains to remain 0.4% higher for the day at 0.7970. While expectations for an immediate RBA rate cut have been pared slightly, the statement next week will still be very closely watched. Our NAB colleagues point out that, with inflation still well controlled, the RBA can afford to give the Australian economy a small boost through policy easing, without deviating from its low inflation mandate.

Lastly, there has been a notably uptick in concern about the prospects of debt negotiations between the new Greek government and its European creditors. In particular, the past 24 hours has seen a steady stream of messages from European leaders that Greece cannot expect another hand-out. Greece’s benchmark equity index fell by 9.2% to its lowest level since September 2012.

After the FOMC policy statement this morning, we look out for Japanese retail sales, German inflation, and US home sales data.

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Source: CoinDesk

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1 Comments

Friend in Turkish side of Cyprus was called to a Bank propa-gander informational meeting to assure them that all was well with the Turkish side of things.

Little do we realise the knock on effects of the State of the Unions...speeches.

And the Reserve Banks not knowing which way is up.

You have to put them all in perspective.

Who owes what to whom, what derivatives really mean and that economy has nothing to do with economy but is a theoretical manouver to avoid ones obligations, whilst scamming others.

Ask any saver, if their money is safe here.

Ask an airline, why a drop in oil prices is a means to still overcharge for their services, from little old New Zealand. Plus fees, plus ...plus, plus.

All Greek to me.

 

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