WSJ:HK Dollar Up Late On US Dollar Weakness Offshore, Stock Gains
-- Euro sustains gains, Aussie hits two-month high against dollar
-- Relief rally follows Greek bailout package
-- Fitch move toward a restrictive Greek default shrugged off
By Siva Sithraputhran
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The euro clung to overnight gains in European trade Friday and the Australian dollar hit a two-month high against the dollar as an easing in euro-zone debt worries nudged investors into putting on riskier currency bets.
The euro remains just above $1.44 against the dollar, keeping much of its gains from Thursday, when the euro zone's leaders announced a new Greek bailout and an overhaul of its rescue fund package for fiscally frail member states.
"The outcome of yesterday's [euro-zone] summit came in at the upper range of our optimistic expectations, with [euro-zone] leaders announcing a series of comprehensive measures to support Greece and to stabilise the euro zone as a whole," was Credit Agricole's reading of the matter.
And judging by the initial market reaction, with shares mostly higher and peripheral euro-zone government bond spreads tightening, that seems to be the overall view.
"It is a genuine relief rally," said Neil Mellor, strategist at Bank of New York Mellon.
Fitch Ratings said the private sector involvement in the Greek deal will constitute a "restrictive default" once the bond exchange takes place, but that was widely expected.
Even so, many questions remain, he added, pointing to the size of the rescue fund and the potential for further debt problems. "The contagion risk is quelled for a while but it is not going to go away. Greece will need greater debt forgiveness," Mellor said.
Joerg Kraemer, economist at Commerzbank believes the euro zone has bought Greece enough time, at least until the end of 2014.
But the crisis will only go away if weaker states consolidate their budgets and restructure their economies in order to become competitive, he added.
So the euro still faces tough tests if the headlines turn bad again.
"The upside for the euro, notably against the dollar, will be constrained by its already elevated level which will leave it vulnerable should any bad news materialise," said Daragh Maher at Credit Agricole.
In the meantime, currency market optimism is being reflected in gains for currencies seen as more risky, namely the Australian and New Zealand dollars, while the Swiss franc fell back as safe haven-type buying was scaled down.
A weak German Ifo business confidence survey had minimal market impact but reminded traders of the economic risks still lurking in the background. The index fell in July to its lowest level in nine months, signalling that even powerhouse Germany is beginning to feel the heat.
The euro was at $1.4410 from $1.4434 late Thursday in New York, according to EBS via CQG. The dollar was at 78.48 from Y78.31, while the euro was at 113.05 from Y112.98. The U.K. pound was at 1.6314 from $1.6315. The dollar was at CHF 0.8207 from CHF0.8150, while the Australian dollar was at 1.0869 from 1.0842.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was about 74.016 from 73.910.
A summary of key levels for chart-watching technical strategists is below.
