AUD underpinned by high commodity prices
Why have the Bank of Japan switched from an obvious all out intervention to a stealth style intervention on the Yen? Earlier this week I said that Confucius says "the BOJ are slow learners" as none of the previous interventions have ultimately worked.
So now they have switched tack and instead of front loading and simply hammering the Yen lower in one foul swoop, they've bought USD, effectively lowering the value of the Yen, and done it in a fashion that doesn't give an obvious sign to the markets. My apologies to the Bank of Japan, after losing Trillions of Yen it seems they have decided to alter the plan.
I discussed with James and John yesterday on Sky Business Channel the question on whether or not the market has gotten ahead of itself in January, and if the Aussie dollar and share market were ahead of themselves. Our consensus was that the Aussie dollar was being underpinned by high commodity prices and Australia having a AAA sovereign credit rating, that is the envy of many northern hemisphere countries, and while commodity prices and interest rates stayed at current levels the AUD would most likely stand its ground.
So what is going to cause some risk off and see markets heading lower and potentially drag down the Aussie, Euro and GBP from current levels? The obvious one is financial markets taking a negative outlook on the Greek debt deal once done. I think some sort of cobbled together deal will happen and unless it is a poor deal all round, the markets will more than likely buy the news and rally initially. Any strong rally on the Euro I think will be a good shorting opportunity, particularly up around the 1.3800 level. Long term I don't see any deal struck with Greece good for the Euro.
Europe hasn't really fixed anything economically in the past 8 weeks. The only substantial financial decision made was for the European Central Bank to make available substantial amounts of cash to ensure we don't see a cash flow crisis that triggered the Lehman Brothers collapse and the GFC. Bottom line is that the ECB ensured banks can continue to lend money to each other, because if they don't the financial world grinds to a halt. Europe is still borrowing at unsustainable levels and growth is slowing, so the fundamentals have not improved, the credit card limits have just been increased so it’s business as usual.
The coming days and whether or not the Greeks can pull a deal together will determine the imminent price direction for financial markets. Part of the deal is a supposed 20% cut to the minimum wage requirement, ouch!
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