##{"id":59074,"date":"2011-10-31T12:31:39","date_gmt":"2011-10-31T01:31:39","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/10\/31\/a-potentially-significant-week-for-currency-markets\/"},"modified":"2011-10-31T12:31:39","modified_gmt":"2011-10-31T01:31:39","slug":"a-potentially-significant-week-for-currency-markets","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/10\/31\/a-potentially-significant-week-for-currency-markets\/","title":{"rendered":"A Potentially Significant Week For Currency Markets"},"content":{"rendered":"

\n\t– This week is a critical one for currency markets in ANZ's<\/span> view
\n\t– Risk currency rally following European package could continue
\n\t– G20<\/span> meeting could drive further weakness in US dollar
\n\t– Rate cut expectations will be the key for the Australian dollar<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tWith Europe announcing a new policy package dealing with its sovereign debt crisis last week, ANZ<\/span> Banking Group suggests this week will be a critical one for currency markets.<\/p>\n

\n\tFor Europe, ANZ's<\/span> global head of forex<\/span> strategy Richard Yetsenga<\/span> notes there have been few if any constructive assessments of the policy package announced last week. Despite this, risk currencies continue to rally.<\/p>\n

\n\tWhile there is likely an element of short covering in this price action, positioning isn't enough on its own to explain the price moves in Yetsenga's<\/span> view. This implies something more fundamental is currently in play.<\/p>\n

\n\tAccording to Yetsenga<\/span>, possible explanations of what this could be are that Europe is not actually in a financial mess, Asia is recovering from its 1H<\/span> economic slowdown, or the US dollar is structurally weak and this is supporting all risk assets.<\/p>\n

\n\tAs Europe does appear to be a mess, Yetsenga<\/span> suggests the first option can be ignored. The other two options are probably having some impact as the US dollar has been unable to sustain a rally in the face of bad global news and recent Asian economic data have improved slightly in recent weeks. <\/p>\n

\n\tYetsenga<\/span> suggests if some of the smaller country Purchasing Managers Index (PMI) readings in Asia can stabilise<\/span>, particularly those of Singapore and South Korea, the current move in Asian currencies could well be extended.<\/p>\n

\n\tThe policy announcement last week in Europe has seen the G20<\/span> meeting slip into the background in terms of the market's focus, but Yetsenga<\/span> suggests the meeting remains important. While only a handful of the players at the meeting matter with respect to Europe, there is potential for some mutual back-scratching at the meeting as various players have some key wishes.<\/p>\n

\n\tAs examples, Yetsenga<\/span> notes Europe wants foreigners to buy its bonds, China wants to be given market economy status by Europe and Japan needs to garner international support for its currency intervention efforts.<\/p>\n

\n\tAssuming some mutual agreements were reached, Yetsenga<\/span> suggests the US dollar may weaken substantially, with USD\/JPY<\/span> the exception. ANZ<\/span> has been downplaying the potential for successful intervention by the Japanese, but formal European support for the Japanese currency stance would likely see the bank re-visit this view.<\/p>\n

\n\tTurning to Australia, Yetsenga<\/span> expects the Reserve Bank of Australia (RBA<\/span>) will announce a 25-basis point rate cut tomorrow. More important for the currency is not the move but the market's assessment of likely future moves, as Yetsenga<\/span> notes the short end of the Australian market still has more than 100-basis points of rate cuts priced in over the next 12 months.<\/p>\n

\n\tIf the ANZ<\/span> view is correct in expecting any RBA<\/span> easing cycle is likely to be shallow, then any dip in the currency is likely to be immaterial. This is especially the case given Yetsenga's<\/span> view the fundamentals for the Australian dollar still appear quite robust.
\n\t <\/p>\n

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