Bernard Hickey talks with HiFX Senior Dealer Dan Bell about the week's currencies and markets action, including the New Zealand dollar's drop from 82 USc to as low as 78 USc as the European sovereign debt crisis returned with a vengeance, driving investors away from bets on commodity-linked currencies.
Bell looks at the on-again off-again decision by Greece's Prime Minister George Papandreou to hold a referendum on Greece's bailout plan, which shocked markets.
Early on Saturday morning Papandreou won a parliamentary confidence vote that avoids snap elections, but he has agreed to step down to allow a government of national unity to be formed. See more here at Reuters.
He looks at the growing fears about Italy's debt situation and explains how a sharp rise in Italy's bond yields to 450 basis points more than German yields is significant, given Ireland, Portugal and Ireland needed bailouts when their yields went past similar levels.
However, Italy is deemed to be too big to fail or be bailed out, given its 1.8 trillion euros of debt, and there is deep division about new austerity measures within the coalition government run by Silvio Berlusconi.
"This is the biggest risk in the European sovereign debt crisis at the moment," Bell said.
Bell also looks at the European Central Bank's surprise decision to cut its official interest rate to 1.25% from 1.5% to try to restart growth in the Eurozone. He points out the European Central Bank's reluctance to buy more potentially toxic Southern European government bonds is also a factor to watch.
He also looks at the US Federal Reserve's comments this week about growth and its decision to stick to its 'twist' strategy, rather than push ahead with another round of money printing or quantitative easing. Figures out late on Friday night showed 80,000 jobs were created in October, which was less than the 95,000 median forecast from economists. See more here at Reuters.
The Reserve Bank of Australia's decision to cut its official cash rate to 4.5% from 4.75% on Thursday, as expected, is also reviewed.
"They've reduced their medium term inflation outlook and in their minutes have reduced their growth outlook," he said, pointing to the potential for future cuts if the Australian economy slows further.
The New Zealand dollar is trading in a range from 76 Australian cents to 77.5 Australian cents. It remains around the low 57 Euro cent mark, with a range up to 58.5 Euro cents. Against the British pound, the New Zealand dollar was in a range from 49p to 50.5 pence.
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.
(Updated with Greek confidence vote win and US jobs data)