Bernard Hickey talks with HiFX Senior Dealer Dan Bell about the week's currencies moves, including the New Zealand dollar's rise to record highs against the US dollar and the British pound on relief for now that the Greek debt crisis has stabilised.
"In the last 48 hours we've seen quite a big 'risk-on' event with equities, commodities and currencies all pushing higher," Bell said of the reaction after Greek politicians voted for an austerity package that staves off default for now.
Bell said the 'blend and extend and pretend' rollover of Greek debt being agreed by French and German banks was also a factor in the relief rally.
"For the time-being that's also being seen as a positive, but in the background I wonder what the credit ratings agencies think of that," he said.
Rating agencies have warned they may treat a debt rollover as a formal default, which risks triggered a new round of financial turmoil.
Bell remained sceptical about the apparent short term market views of some that Greece's problems were over.
"The bottom line is that Greece's deficit is still 5% of GDP. They're still spending more than what they take in tax. And we've seen the opposition party put pressure on the current government and if we see a change of government in the next year or two things could change dramatically with the austerity measures," he said.
"There's still a lot of risks associated with Greece."
The New Zealand dollar rose to post-float highs of just under 83.2 USc and just under 51.80 British pence, as well as a three year high of 71.5 on the Trade Weighted Index as markets put riskier bets back on.
Bell said the Reserve Bank was still unlikely to intervene to push the New Zealand dollar lower.
ECB, RBA and QE II
The European Central Bank (ECB) is expected to increase its cash rate from 1.25% on Thursday after it warned this week of 'strong vigilance' against inflation pressures in Europe.
The Reserve Bank of Australia (RBA) is expected to leave its official cash rate on hold at 4.75% on Tuesday, although it has been warming the market up for rate hikes later in the year, again to ward off inflation from rising commodity prices.
Bell said a third round of quantitative easing by the Federal Reserve was not currently expected, despite the end of QE II on June 30 and a still sluggish recovery in the US economy.
"For the time being Bernanke and the FOMC are going to be happy keeping interest rates effectively at 0-0.25% for an extended period," Bell said.
Non farm payrolls figures due next Friday would be crucial in assessing the outlook for the US and global economies, he said. US jobs growth was expected to be around 100,000-150,000 in June and the unemployment rate was expected to drop slightly to around 9%.
"With the soft run of economic data we've had in the second quarter, we need to see the employment situation improve."
Dan Bell is the Senior Dealer at HiFX, a UK-headquartered foreign exchange dealer with significant operations in Australia and New Zealand. It has a dealing room in Auckland. See more detail here.