By Raiko Shareef
NZ Dollar
The USD closed effectively unchanged on Friday, after a late-session agreement on Greece saw the EUR take back earlier losses.
NZD/AUD stepped back from its highs as AUD posted a healthy 0.6% gain.
Through the European session, EUR slipped from 1.1350 to below 1.1300 as investors fretted that an agreement on Greece would not be reached at the Europgroup meeting.
But after the European close, Greece and its creditors announced that Greece would take up a four-month extension of the existing bailout program.
However, this extension is dependent on Greece detailing its reform plans by Monday and then EZ finance ministers approving the list Tuesday, to enable national parliaments to vote on ratification ahead of the 28 February current bailout expiry date.
Reports suggest that Greece will be spared the need to cut pension entitlements or raise new taxes, and will be permitted to meet less ambitious targets for primary budget surpluses (scheduled to rise to 4.5% from a 2014 outcome likely to be close to 1.5%).
There was precious little else to pique investor interest.
The flash reading of European manufacturing PMIs were softer than expected, but strong showings in the service PMIs salvaged the overall results. The better-than-expected US Markit PMI was the first notable positive surprise in US data for quite some time.
NZD/USD traded sideways in a very narrow 40 pt range to close just 0.1% higher at 0.7530.
More interestingly, NZD/AUD came off its highs, falling 0.5% to below 0.9600. After breaking the big 0.9700 level earlier in the week, the cross was due for some modest consolidation. We suspect it was this dynamic that prevented NZD/USD from matching AUD/USD’s 0.6% gain.
The Grey Lynn fruit fly hunt continues, with two more flies discovered over the weekend. Horticulture, the industry at risk, ranks amongst the top five commodity exports from NZ. However, international investors less readily associate NZ’s economic strength with that than, say, dairy. With the outbreak currently localised and contained, there has been no discernible financial market impact. Unless fruit flies are discovered outside the current containment area, we expect that to continue.
This week, Fed Chair Yellen fronts up to lawmakers in the semi-annual testimony to Congress.
We do not expect the Chair to derail the notion that the first Fed Funds Rate hike will come at some point in mid-2015. However, we are wary that any airing of risks might provoke sudden sell-offs in the USD. We would use these as opportunities to enter long positions on the USD.
Other highlights this week include China’s PMIs (Tue, Sat), Australia’s GDP partial indicators (Wed, Thu), and the expected Fonterra payout update (Tue or Wed, maybe).
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