ISDA Declares Credit Event
ISDA formally declared a credit event in Greece on Friday. There was no immediate currency reaction even though the news came an hour before FX markets closed. Earlier though, another strong US payrolls report triggered substantial broad-based gains for the dollar, especially against the euro, the yen and the Swiss franc. USDJPY hit a new 10 month high, trading on Friday in a range of 81.47-82.65. EURUSD traded 1.3097-1.3291. The price action supports our view that the dollar’s character is changing – it no longer strengthens only in the presence of risk aversion, and this paves the way for further dollar gains over the coming months as the US recovery gathers pace and market expectations for further Fed easing recede. An exception was the Canadian dollar – USDCAD actually fell immediately after the payrolls numbers, and this suggests the time is approaching to consider entering AUDCAD shorts. The headline payrolls number itself came in at +227k (cons. 210k) in February, while January’s and December’s data were revised up by a net 61k jobs. The unemployment rate was unchanged at 8.3% – in line with expectations despite a 476k increase in the labour force. Four policy meetings lie ahead this week: we expect no change in the Fed’s policy stance on Tuesday, and nothing material from the BoJ either. Norges bank meets on Wednesday and, although we look for no change to the policy rate, Governor Olsen is not likely to waste an opportunity to try to talk down NOK. On Thursday, the SNB is very likely to keep the EURCHF floor unchanged at 1.20. Eurozone finance ministers and the IMF will likely need to sign off on the entire second Greek bailout plan this week – the finance ministers meet today, and the IMF executive board on Thursday.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank