EUR: markets slipping on Greece

Month in Review – For the last fortnight Greece has been negotiating with the IMF and other Eurozone countries for 7.2 billion Euros in new loans, to help pay old loans. The creditors were demanding that Greece make some reforms and cuts before they handed over the money.

While some warned that Greece was sleepwalking into a crisis by playing hardball in Brussels, others praised their bold approach to negotiations; their ‘red lines’ that they refused to cross.

Whilst this approach may have won the hearts of many proud Greeks, it only delayed and further complicated the inevitable crisis. Banks are now closed, international money transfers banned (outside of special exemptions), and a referendum will take place this Sunday the 5th of July. It probably goes without saying, but global markets are on the edge of their seats awaiting the inevitable fallout.

The Key Trends – Put simply, the key reason the EUR has been quite resilient amidst an unprecedented bout of turmoil can be attributed to the debate over whether a Grexit will be a mid/long-term positive (by ridding the Eurozone of its weakest link) or negative (by setting a precedent for other countries, namely Portugal, Italy & Spain to exit as well).

What’s Next? The Referendum on Sunday is where Greece votes to accept or reject the terms of the rescue deal most recently proffered in Brussels. A lot of commentary will be aired between now and then and global investor confidence will continue to sag.

If Greece votes ‘yes’, then the Syriza government has effectively lost power. It will return to Brussels and hope that the deal is still on the table – which is not probable. Greece will then likely vote again on a new Government.

If Greece votes ‘no’, then the Grexit appears to be inevitable. Watch this space.

Ellis Taylor

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AUD: dark days ahead

Month in Review – The Australian Dollar traded in a 3 cent range against the USD, spending most of month in the mid-0.77s. The markets traded in much the same state that they have the previous months with the Fed stating they wanted more evidence of growth before raising rates and the RBA claiming that easing was still on the cards. Further, commodity prices fell slightly which hindered the AUD’s potential to break 0.78 cents. Also of importance was China, who cut their interest rates once again to 4.85 percent – the fourth cut since November 2014. The cuts have come as a result of a sliding share market as the country gears up to lower borrowing costs and means of supporting a slowing economy.

The Key Trends – The focus in the markets over June for the AUD were speeches from Australia’s and America’s Reserve Banks. Talks from Fed Reserve Governor Jerome Powell earlier in the month hinted towards the possibility of two rate hikes. He also believed that the US Economy will grow at around a two percent pace this year. Further jawboning from Glenn Stevens at the start of the month pushed the Aussie lower, as he noted that the RBA remained opened to further easing this year.

What’s Next? As June and the Financial Year come to a close the prominent sentiment is the all too familiar feeling of doom and gloom. However, as we did hit the lowest levels since April 15 over the final weekend of June, the sentiment may in fact be justified. For AUD/USD levels, US home sales, consumer confidence, manufacturing activity and Non-Farm Payrolls will lead the charge as the new Financial Year starts. Further, U.S. data has been improving relative to expectations since the middle of May and the continuation of positive data may bring forward Fed rate hike bets, triggering risk aversion and ultimately, a drop in the Aussie.

Alexander Cook

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USD: Yellen me softly

Month in Review – Investors were hit with some killjoy commentary from Janet Yellen in June following the FOMC’s statement of ‘lower for longer’ in reference to their monetary policy stance. With many in the markets predicting a September rate hike of 25 basis points, and possibly another rate hike by the end of the year, this let the wind well and truly out of their sails, pushing some into the GBP and away from the USD as a result.

The Key Trends – The economic slowdown earlier this year was grossly overestimated it seems, with GBP contracting at 0.2% from January through March, far less than the 0.7% previously estimated due to the severe storms which struck the US earlier this year. Consumer spending was still strong with firms stocking up on more inventory, and signs of faster wage growth and strong employment will support a private sector activity rebound in the coming quarters.

What’s Next? The pairing to watch for in July will be the AUD/USD. With its manufacturing woes well and truly behind it, the USD will look to consolidate especially after strong home sales figures in June. This combined with investors steering clear of commodity currencies like the AUD amidst the Eurozone uncertainty, and redistributing funds to safer assets/currencies should bode well for Greenback.

Victor Erzikoff

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GBP: relegated to the middle pages

Month in Review – Writing an update on sterling while the world is focused on Greece is like being a newspaper’s squash correspondent during the Olympics; you’re involved but you’re not going to make too many headlines. In a climate of fear and intrigue as we are seeing in Greece at the moment, all but the most important and fundamental of data points are lost in the noise and fog.

The Pound’s performance was mixed last week, starting off strong before fading as the week went on. Speeches by Monetary Policy Committee members Weale, Forbes and McCafferty were towards the more hawkish end of the scale. Certainly Martin Weale’s FT article suggests that he is the market favourite to vote for an interest rate rise at the Bank of England’s August meeting.

The Key Trends – The Pound just keeps on rallying against the floundering Aussie and this month was no exception. 1.9600 being the low before soaring to 2.0600 which is the highest we’ve seen since July 2009. GBP/USD kicked off the month at 1.5166 then touched a high of 1.5928. GBP/EUR for all its controversy, finished back where it started the month at 1.4000, a low of 1.3529 and high 1.4303

What’s Next? Looking at the data calendar for the week ahead, there is very little to distract markets from Athens, but some sterling negativity could easily be spied. Tomorrow’s final reading of Q1 GDP is expected at 2.5%, slightly higher than the 2.4% that the first revision gave us. Consumption, investment and inventories are expected to be the main positives with Q1’s awful trade performance the main laggard. As a result the latest reading of the UK current account – exports from the UK minus imports into the UK – should continue to deteriorate further into negativity.

Joe Donnachie

Phone: + 61 2 8298 4915

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NZD: No flight for the Kiwi

Month in Review – The Kiwi Dollar followed closely on market commentary regarding Greece, with all focus centred on the Eurozone and the much anticipated “Grexit” that may follow at the beginning of July. Despite our distance from the epicentre of the crisis, NZD and AUD are still perceived as ‘risk-sensitive’ currencies, and will be sold during times of financial uncertainty. NZD/USD is now at its lowest level since July 2010. This is due to investors flocking to currencies that are seen as ‘safe havens’, namely the USD and CAD.

The Key Trends – The RBNZ cut the OCR which quickly dropped the NZD like a stone, trading now at 0.7000. This came at a bit of a surprise as the market was only pricing in a 50% chance of such an outcome. This is the first time rates have been cut in four years to boost inflation as growth slows. The RBNZ has now embarked on an easing cycle that will deliver at least one more 25 bps cut.

What’s Next? Westpac’s yearend forecasts are now at 0.6800 and the end 2016 target of 0.66 remains unchanged. The coming month will focus heavily on the Greece outcome. All things being equal, the Kiwi looks to be slowly tracking lower, which is good news for Kiwi exports, but not so welcome for Kiwi based importers.

Raphael Alvos

Phone: + 61 2 8298 4925

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