AUD Approaching Parity
The absence of economic data releases in Asia did not spare the euro from further selling as the wider market wakes up to the risks emanating from Greece’s new political landscape. The Australian and New Zealand dollars continue to weaken too as FX volatility rises and global risk appetite falls. A Reuters report pointing to increased political uncertainty in China did nothing to steady investor nerves either, and triggered further selling of both currencies. The report indicated China’s five-year congress could be delayed by a few months to allow time to debate the size and composition of the politburo. With Australia’s budget announcement having cemented the tighter fiscal-looser monetary policy regime shift, the Australian dollar will also remain particularly sensitive to any weak data prints that will magnify the potential for RBA easing. Elsewhere, the focus remains very much on the post-election political events in Greece, where SYRIZA leader Alexis Tsipras stirred things up by warning that “the popular verdict clearly renders the bailout deal null”. He added that banks should come under state control and called for an international commission to investigate whether Greece’s debt is “legal”. It remains to be seen if Tsipras will be any more successful than New Democracy head Antonis Samaras in his attempt to form a new coalition government. Given the backdrop, the yen should have more scope to probe the upside. Tuesday’s second-tier US data were predictably shrugged off, with the rise in the NFIB small business optimism index to its highest level since December 2007 countered by mixed consumer-related data – leaving the broader macro picture unchanged. Though we still do not believe the Fed will embrace QE3, the door is likely to stay open for some time, limiting the upside for the US dollar. Even Dallas Fed President Fisher, a well-known hawk, acknowledged that “job growth is still weak” and noted “I’m not yet ready to advocate an exit strategy”. Bernanke will speak on Thursday.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank