There has been so much going on in FX markets of late that we thought this week we would do a brief sum up of some of the major events shaping our FX Strategy at the moment.

First up, the Greek austerity package has just been voted on and passed. While it is a long and arduous road (with moire than the occasional strike and riot) this is a significant and important step in forming a comprehensive response to dealing with Greece’s woes specifically and the euro zone troubles more generally. In response, predictably, the EUR is rallying. Whether the EUR continues to outperform from here may critically depend on how US markets react to the news out of Europe.

Down in Australia (it may be a small country but it’s currency is the 5th most traded in the world!) the Reserve Bank surprisingly kept interest rates on hold leading to increased demand for the AUD and pushing the AUD:USD back up towards all time highs. Most commentators view the aussie dollar as overvalued on a long term basis but in the short term it appears to be continuing its bullish signals.

Meanwhile there has been a plethora of China related news. The Yuan hit an 18-year high during the past week of 6.2937. It was also the second month of net FX sales with Chinese banks continuing to sell more FX to Chinese clients than they bought for them – a sign that Chinese companies and individuals are once again becoming more comfortable with holding FX. There was also the “unlocking” of 22 listed Chinese companies share registries – allowing more foreign investment in China. Finally, the Chinese government instructed banks to roll over a record amount of local government debt – which might be a positive sign or a negative one depending upon your perspective!

It will be interesting to see how the currency markets play out over the next few weeks – the Greek deal may lead to a risk on trade in currencies such as the AUD and CAD however, if markets see an improving euro zone then it could lead to very positive momentum for the USD amongst others.

By Friday Fundamentalist, Published on 15th of February 2012
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