- Greek Parliament approves austerity bill
Greece’s parliament early Monday ratified austerity measures of EUR 3.3 billion in wage, pension and job cuts this year, which should now give way to the release of the second EU/IMF loan package at Wednesday’s Ecofin meeting. EURUSD recovered from 1.3185 up to 1.3260 on the news and equity markets have managed to hold up in Asia. The shape and form of the PSI component of the 2nd package will now attract attention, with uncertainty still over whether the necessary high/100% acceptance of the deal can be achieved with or without triggering CDS. However, heading into Wednesday’s Ecofin meet, risk-taking should hold up better which should favour the commodity currencies. We continue to like CAD with relative positioning continue to favour this currency within the commodity bloc.
- China’s Premier signals RRR cut; AUD to remain supported
Local china news reported yesterday that Chinese Premier Wen Jiabao said the nation should take pre-emptive measures and start “fine-tuning” economic policies as early as in Q1. Premier Wen made similar statement on economic policies in late October last year and then we saw a RRR cut on 30 November 2011. So we could see a RRR cut in late February or early March around the National People’s Congress. If this is forthcoming, it will bolster expectations that investment spending is highly likely to preserve an 8%+ growth rate for China this year, and in turn allow AUDUSD to progress back to the recent highs above 1.08.
- Weak Japan GDP unlikely to draw BoJ response
Japan’s economy shrank by more than expected in Q4 (-0.6% q/q vs. -0.3% consensus). However, this is unlikely at this stage and indeed usually reliable media reports suggest the BoJ will do nothing. However, news reports suggest the BoJ will review the way it presents its inflation target as soon as the next semiannual economic and price outlook report to be released in April. Currently, the BOJ has had a target-like policy called an “understanding” of “price stability” for which it aims. The BOJ says its current “understanding” is that price stability would mean that inflation was in a range of 2% or lower, centring around 1%. A change in the characterisation of inflation in itself should not have a material impact on the JPY unless it leads to expectations of the BoJ conducting QE. However, with the BoJ loathe to even consider unsterilised intervention at this stage, we continue to expect JPY strength to persist given the Fed’s pledge to keep rates low for an extended period of time.
- IMM data shows more EUR short covering; Specs. now net long CAD, still very long AUD
Friday’s CFTC FX positioning data revealed a further trimming of the net EURUSD speculative shorts, from -157k to -141k and -172k two weeks ago (covering a period during which EURUSD added two big figures). There remains plenty of scope for further short covering gains and we hold to the view that we could see 1.3500 on successful completion of the Greek bail-out package. AUD net long were trimmed only slightly in the week through Tuesday, perhaps because the surprise RBA rates inaction will have seen some longs, taken off into the RBA meeting, reset. Notable is that CAD speculative positioning is now (just) net long. Relative positioning nevertheless continued to favour AUDCAD slippage.
BNP Paribas