Euro: Why is the Market So Reserved after Greece’s Bailout?
Dailyfx | Feb 22, 2012 01:38AM ET
On a day that was fundamentally positive for risk trends and the euro, it may come as a surprise to see that the notable performance variation in the pairings though that can help guide the close observer to the key fundamental aspects behind the drop. At the upper end of the spectrum, the safe havens (US dollar, Japanese yen and Swiss franc) reflect a budding risk aversion shift that is showing through more prominently here than with equities…for now. For EURAUD, the supposed short-term relief in the approval of the second Greek bailout package shows though with the 0.8 percent rally on the day. And, then there is the relatively restrained decline against fellow high-yield currencies (Canadian and New Zealand dollars). This can trace back to the willingness to further cut rates in the RBA’s recent monetary policy statement.
Canadian Dollar Decline Deviates Notably from Crude’s Surge Higher
Historically, the correlation between USDCAD and US oil prices is exceptionally strong (it was held over -0.75 for most of the past year), but recently the two have taken significantly divergent paths. In fact, in the month of February, we find USDCAD little moved while crude has surged over 11 percent peak-to-trough. The commodity is finding its drive through specific supply concerns in tensions with Iran (the country has cut of oil exports to British and French companies – though is of limited consequence). If there were nothing else for the loonie to worry about, this would be more than enough to drive the currency for the oil-exporter higher. Yet, there is more prominent theme to worry about: risk trends. Crude’s surge conflicts with hesitation on the part of underlying risk trends. And, if the greenback is part of the pairing, risk trends will prevail.
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