Greece claiming IMF bears “criminal responsibility” for the country’s crisis; German data miss blamed on Greece; positive outcome for USD expected from Fed announcement

By Raiko Shareef

Once again, a very quiet night in currency markets, but understandably so ahead of tomorrow morning’s FOMC decision.

That, and a lack of progress on the Greek front, have the potential to ignite markets in week’s end.

The USD is marginally stronger across most majors, but the gain at the index level can largely be put down to an underperforming EUR.

US data released overnight supported a stronger dollar.

While housing starts fell sharply, such payback can be expected after the 22% gain in April. Building permits stole the show, though, defying forecasts of a similar retracement, and instead punching to its highest level since 2007.

With regards to Greece, PM Tsipras stepped up the vitriol, claiming that the IMF bears “criminal responsibility” for the country’s crisis, and that the ECB’s tactics are akin to “financial asphyxiation”.

Note that the downside miss in the German ZEW survey’s expectations can at least partly put down to uncertainty around Greece’s future. At the minute, there is talk of an emergency meeting this weekend between European heads of state, following tomorrow’s meeting of finance ministers. EUR/USD keeled down to 1.12 overnight, having snapped above 1.13 earlier in the evening. It sits in the middle of that range now.

NZD sits among the better performers against the USD overnight, holding its station just below 0.70. It was unfazed by the leak lower in the GDT Index. If anything, with the grim mood currently hanging over the dairy sector (reflected in the RBNZ’s recently-pared outlook for incomes), such a small dip in prices might almost be perceived as a positive. 

For tomorrow’s FOMC meeting, the USD seems poised for a modest upgrade in the Fed’s outlook for the economy.

We will be watching to see whether policymakers remain confident that the first-quarter slump was temporary.

There is potential for significant volatility, with investors needing to immediately parse the balance of the statement’s tone (constructive?) and the ‘dot point’ expectations of future rate hikes (unchanged?) at 6am NZT. Fed Chair Yellen will then step up to the plate to face the press at 6.30am.

Given the improving US data tone of recent weeks, and keeping in mind trend payrolls growth of 200k, we anticipate a modestly USD positive outcome by the end of the day.

Today, the RBA’s Debelle speech to a financial markets audience seems likelier to provide fresh information, as opposed to the RBA minutes, which have been overshadowed by speeches from Stevens and Kent in the past week.

The dairy auction overnight will closely-watched, given that the RBNZ’s policy easing is partly driven by concerns around the income loss on the agricultural sector.

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Raiko Shareef is on the BNZ Research team. All its research is available here.