The Greek effect 20 Jun 2012
Over the weekend, the Greeks went to the polls, in an attempt to break the impasse relating to their ongoing future within the Eurozone. Although at this stage with the votes counted, and the beginnings of forming a government underway, a government that is likely to be pro Euro, we still await the market reaction to the news. So as European markets open up on their first trading day since the vote, the real test of currency and other asset markets will be to see the size of last weeks speculative trades and what portion of the market got the bet right vs the wrong bet. We will get a measure of those volumes once we see the direction and extent of moves in the markets.
One thing is for sure, there will be future tests of the single currency, if not from Greece then from other far larger economies within the Euro zone. Last week we saw how the newly elected French President was able to bring leverage in negotiations, in that Spanish banks got a bailout from European authroities, pretty much free of any strings attached. Indeed the Spanish banks will only need to pay 3% instead of the approx 6% that the markets demand usually. this will bring hope to Greek officials who will be hoping for the dilution of the current austerity measures.
There comes a time when the German administration has to show some pragmatism, and accept that if they want the Euro to remain in tact and in it's current form, then they will need to accept that they need to cut some slack to the southern european economies, in terms of austerity. The austerity measures to date, has only made economic conditions more severe in most of those economies, with high unemployment and zero or negative growth. Obviously there comes a time when, a pro growth scenario becomes accepted. The question is, are the Germans now at that stage?
Here in New Zealand the Reserve Bank of New Zealand, last week left Interest rates on hold, and for the first time acknowledged that the housing market is starting to come onto their radar. They maybe a little late with that view, in that housing shortages are starting to be reflected in prices, especially in central Auckland, and likely to be show up in Wellington and Christchurch in the coming months.
So whereto for the New Zealand dollar from here. The big picture, would show the NZD gaining ground against the USD, GBP, JPY and to a lesser extent the AUD, but we should also remember that it doesn't take much to turn market sentiment, and indeed the short term is as difficult as ever to determine.
Should you require any information or help with your currency transactions, please feel free to contact us at firstname.lastname@example.org
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