Germany and France came to an agreement about the Greek debt financing during Thursday’s EU Summit in Brussels. After weeks of speculation and debate, both countries have finally agreed to back up a potential EU/IMF bailout plan.
But the EU is still far from being relieved of the speculative pressures on the euro. The situation is still not clear as to whether or not Greek will receive any aid and the financial status of other European countries such as Spain and Portugal is raising questions. The downgrade of Portugal’s credit rating by Fitch Ratings last week is an indication of the persistent uncertainty in the eurozone.
In the U.S, this week’s employment numbers should confirm a stabilizing jobs market. However, the Federal Reserve still refuses to change its speech about maintaining a low interest rate for an “extend period”. Although some economical data such the GDP and Retail Sales have shown good signs of recovery, the housing market remains fragile and employment numbers have not appreciated enough to justify a rate hike.
On the commodities side, oil and gold have been moving sideways for the past week which led to choppy movements in the Australian and Canadian dollar.
Although the loonie is stepping away from parity, it is still favoured against other currencies amid improving economical conditions in Canada and an expected Bank of Canada rate hike by mid-year.
The aussie remains strong and profits from growth in Asia, but it suffers from occasional risk-aversion selling. Moreover, China’s threat to counter its own inflation should prevent the aussie from reaching new highs in the short term.
We expect the dollar to remain well supported in the short to medium terms.
European currencies could find some relief on occasional short covering or positive data, but we expect their appreciation to be limited as long as sovereign risk fears persist.
We also expect central banks to remain cautious and keep their interest rates at exceptionally low levels until at least mid-year.
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