Asian stock markets reverse yesterday's sharp declines as hopes of new economic stimulus from China and decent corporate earning helped eased concerns. USD was stronger in the G10 and US treasury yields rose. RBA minutes from the April meeting, which held rates at 2.25%, sounded dovish by maintaining a clear easing bias. The minutes stated that “further easing of policy may be appropriate over the period ahead.” Then went on to say “the board would continue to assess the case for such action at forthcoming meetings.” The lack of action in April reflects an increasing uneasiness about the housing market and the implied household leverage. According to the minutes the weak economic data from China indicates that demand for commodities are unlikely to accelerate in the near term. These minutes point that the costs of further monetary easing are getting higher than the potential benefits. As a result, it may be time to focus on which central banks will raise rates in the medium-term. In that regard, we suspect that the Bank of Canada is a prime candidate. Coupled with a stabilization of the oil price, the Canadian dollar seems quite attractive on the long side. Elsewhere, the RBA's Steven dovish speech further reinforced that a rate cut remains on the table. The central bankers comments here relevant ahead of tomorrow's Q1 CPI print. Slowdown in China growth and soft commodity prices should skew inflation outlook to the downside. View for the headline read to soften to 1.3% y/y from 1.7% y/y will escalate market expectations for OCR easing at the May 5th meeting and put additional selling pressure on AUD. AUDUSD focus turns to .7650, bearish break would indicate an extension of weakness to 0.7555 support. Reversal in crude oil prices has given CAD new life. USDCAD bearish correction should target 1.1990 fibo level before pausing.
While the Greek economy continues to deteriorate today we should get indications that the Eurozone is improving. The German ZEW data should improve in both Current situation and expectations. Market expect German ZEW expectations to rise from 54.8 points to 55.3 in April and current situation from 55.1 to 56.5. Yet, investors are not looking at economic data when trading the EUR but are focused on policy divergence and rising Greek risks. With ECB president Draghi making it crystal clear that QE bond buying will continue uninterrupted and rates stay negative, EUR should remain under pressure. The USD was stronger as worries over a Greek default have increased. Unless bailout funds made available very soon Greece is in imminent danger of running out of cash. The Greek government has now requested that local municipalities to transfer cash to the central bank. The Euro fell while Greek 5yr yields rallied to 19.6%. The weakest point in Greece is now the banks which are close to insolvencies and are only being propped up by access to ECB liquidity (Emergence Liquidity Assistance scheme). It highly probably that Greece actually runs out of collateral to access the ECB refinancing. Yet, tension negotiations indicate that a deal is unlikely to be reached prior to a meeting of Euro area finance minister on April 24th. Not helping the anxious situation, Greek finance minister Yanis Varoufakis cautioned of contagion if Greece leaves the euro. However, ECB Draghi quickly discounted the threat. Draghi comment that while he would like to see Greece in the EMU the currency was not defenseless to halt the shock from spreading. Draghi stated "we have enough instruments at this point of time, the OMT (bond-buying plan), QE, and so on, which though designed for other purposes could certainly be used in a crisis if needed."
