Relative Value in Aussie and Kiwi?

Posted on

Market Drivers April 20, 2015

Euro wobbles as negotiations with Greece at an impasse
PBOC lower RRR by 1% over the weekend – kiwi, Aussie unfazed
Nikkei -0.09% Europe 0.70%
Oil $56/bbl
Gold $1203/oz.

Europe and Asia:
NZD CPI -0.3% vs. -0.2%
EUR GE PPI 0.1% vs. 0.2%

North America:
No Data

Although the weekend was full of newsflow, the price action on the first trading day of the week was relatively sedate with EUR/USD the only pair seeing some action as it came under selling pressure once again, The negotiations with Greece remain at a standstill and although Euro group officials are trying to reassure the markets that Greece will be able to service its debt in May the situation clearly remains dire.

It appears that neither side wants Greece to exit the euro, but unless the EZ can structure some kind of a realistic debt forgiveness plan it becomes just a matter of time before Greece will default on its obligations. For now the market remains cautious but but relatively steady but if Greece is forced to exit the euro the impact will be unknown.

On the one hand most of the financial risk of such an event has been removed from the system. On the other hand the political ramifications may be much worse as other isolationist forces in Europe would take solace from such a move and create a greater political risk of fracture in the EZ.

Meanwhile the eco calendar was very quiet today with only a smattering low level data out of New Zealand and Germany. In New Zealand the CPI readings came in a little cooler at -0.3% versus -0.2% eyed – no surprise given the strengthening of the currency especially against the Aussie. New Zealand Services PMI rose to 57.6 from 55.6 prior showing strength in that sector as well.

The commdollar pairs popped on the Asian open, boosted by reports this weekend that PBOC cut its RRR by 1% but the rally faded as the night wore on with both pair returning to their Friday closing levels. The commdollars remain an interesting theme in the currency market as they may get a double whammy bid if Chinese demand shows signs of improving while the Fed remains stationary until September at the earliest. Under such conditions the relative yield advantage of both kiwi and the Aussie could attract more buying flows as the spring wears on.

In North America today the calendar is barren and players are likely to look for headlines from the other side of the Atlantic for any price direction clues. If negotiations with Greece continue to deteriorate the EUR/USD could see 1.0700 tested as the day wears on.

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *