• Syriza wins with an anti-austerity stance
  • US dollar supported by risk aversion
  • Bank of Canada ready to cut rates again
  • Australian dollar under pressure

This week promises to be another volatile one for the market.  Sunday’s Greek national election polls indicate that an anti-austerity party, Syriza, won the election and will be will be forming a new ruling coalition in the Parliament in the coming days.

That said, the election result has immediately unsettled the market since Syriza has made it clear it will renegotiate the austerity conditions imposed by the International Monetary Funds, the European Union (EU) and the European Central Bank back in 2010, when Greece agreed to a €100 billion bailout loan to avoid defaulting on debt payments and possibly exiting from the Eurozone.

 

Last year, Greek’s economic output remained stalled at 30 percent below the pre-financial crisis level, and the unemployment rate remained near a depression-like level of 26 percent.  Meanwhile, the total public debt is about $370 billion or $34,600 for each resident. This suggests that cutting more public spending, laying off additional government workers, and reducing social benefits will not be enough to restore the public finances.  A third of the population now lives below the poverty line.

It is no surprise that Syriza’s election message of “a return of social dignity and social justice” was well received by the Greek voters.  Unfortunately, many EU governments who have lent money to Greece are concerned that Syriza will renege on the Greek debt payment obligations as they stand and could possibly usher in another euro crisis.

With so much uncertainty and risk exacerbating the market, the dollar is expected to benefit as a reliable safe haven currency today.

EUR-USD has managed to regain some support above 1.1200 this morning after Syriza won the Greek national election on Sunday.  The euro has already fallen by 5.5 percent this year, and it is expected to weaken more as the repercussions of the Greek election gets chatted today.

jan-26 graph

GBP-USD managed to climb above 1.5000 since Friday after the release of a positive retail sales report.  The sales rose 0.4 percent month-over-month in December, compared to an expected decline of 0.4.  The 4th quarter UK Gross Domestic Product report will be released tomorrow.

USD-JPY is trading above 1.1800 but expects to be well supported as post-Greek election trades favor the yen as a safe-haven currency for now.

USD-CAD is trading close to a 6-year high of 1.2440 after the Bank of Canada surprised the market and cut its benchmark rate last week.  The bank made it clear that it’s prepared to make another rate cut in March if low energy prices continue to strain the economy.

AUD-USD has fallen below 0.7900 overnight and is expected to go lower amid expectations that the Reserve Bank of Australia will follow other central banks and weaken its currency to combat disinflation and promote exports when the bank meets in February.

After today, all eyes will be on the Federal Open Market Committee meeting on Wednesday.  The market is anxious to learn if the Fed is still prepared to raise the short term interest rates this year amid global slowdown, low prices and weaker currencies overseas.

Stay tuned.