Gareth Vaughan speaks with HiFX senior dealer Dan Bell about the week's currencies and markets action in our 'Never a Dull Moment' report including a look at the ongoing Greek debt drama, and upbeat economic data from the US, NZ and Australia. We also discuss the NZ dollar's strength against key currencies and whether the potential for Quantitative Easing III, or more money printing, from the US Federal Reserve is just a fantasy of Wall Street.
A meeting of Eurozone finance ministers will take centre stage early next week as the world's financial markets hold their breath to see what the next chapter in the long running Greek sovereign debt saga will hold.
Eurozone finance ministers are due to meet on Monday with news of whether Greece receives a €230 billion rescue package expected against a backdrop of scepticism from creditors that Greece will find the €325 million worth of budget cuts demanded of it. The clock is ticking with Greece facing €14.5 billion worth of debt repayments on March 20 and an election in April, with Greek political leaders told to deliver a letter pledging to implement budget cuts and economic reforms after the election.
Bell said Eurozone economic data out this week showed just how bad things are in Greece.
"The euro region (economy) contracted 0.3% in the fourth quarter with Greece contracting by 7% on an annualised basis in 2011," Bell said. "The (Greek) unemployment rate is sitting at around 22%. So Greece is in a bad way. As much as everyone is thinking we’re going to get this next bail out in the short-term, we continue to see a lot of risk associated with Greece."
"Greece has got some fairly large loan roll overs coming up at the end of March so they need the money. Whether or not they get this bail out as it is known today or whether there’s some type of bridging loan to get them through March will certainly be discussed on Monday."
Some investors less worried about prospect of Greek default
Bell said the way so-called risk assets, like equities and currencies such as the New Zealand and Australian dollars, have been performing recently suggests some investors have decided that "even if Greece were to default, the potential contagion risks aren’t as great as they were previously because of the huge liquidity measures that are being undertaken by the European Central Bank (ECB)."
In December the ECB lent nearly €500 billion to banks in cheap loans through its Long Term Refinancing Operation. Another round of this is due on February 29.
"They're basically lending as much as the European banks want," Bell said. "They lent up to €500 billion in December. (So) that’s going to be interesting to see how many people take it up (on February 29)."
Govt, RBNZ quiet on high TWI
Meanwhile Bell said it was surprising there hadn't been more said by the government and Reserve Bank Governor Alan Bollard about the strong New Zealand dollar, which was likely to be hurting exporters.
"The New Zealand dollar, on a trade weighted basis, is up in a range where it has only ever spent 1% of its life in against all the major currencies," said Bell.
"If you look at the NZ dollar versus US, we're sitting just under US84 cents at the moment, not far off those post (1985) float all time highs at US88c last year. Against the euro we're well over €63c, which is a historical high, against the pound we're not far off all time highs."
"The only currency we remain depressed against is the Australian dollar, we're sitting around A77.50c at the moment," Bell said. "You would think that the stronger New Zealand dollar will start to have an impact on exporters, if (it's) not already, but there hasn't been many comments from either the government or Bollard with regards to the high currency."
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.