GO Markets FX Analysis | Cliff concerns back on the radar

BoC’s Carney to head Bank of England

The surprise of the session was the news Bank of Canada chief, Mark Carney was appointed to the Governors seat at the Bank of England. Carney, a former Goldman Sachs banker, has been named the successor to take over Governor Mervyn King whose term expires at the end of May 2013. While it’s hard to ascertain at which end of the scale Carney sits in an overall hawkish Bank of Canada (given vote counts and minutes are not made public), its apparent Carney is a the helm of the only G7 central bank with a tightening bias, a bank unwilling to use the same means of monetary easing in the form of unconventional policy tools such as quantitative easing famously employed by the US Federal Reserve. Although this hardly suggests Carney will immediately begin to unwind the Bank of England’s current accommodative policy initiatives (which include GBP375 bn in quantitative easing asset purchases), it does imply Carney may be at the hawkish end of the central bank, erring to the side of committee members such as Spencer Dale or Martin Weale.

Nonetheless, the surprise failed to see material gains from Sterling, with a moderate 30 pips rally in the ensuing period, we did however see a more pronounced swing to the upside against the CAD, with the pair jumping to highs of C$1.5955. At the time of writing GBPUSD is buying $US1.6027.

Cliff concerns back on the radar

After last week’s solid performance, there was little to inspire further upside momentum overnight with market participants refocusing their gaze on the impending fiscal cliff. While markets may have responded in kind to signs of progress on fiscal cliff front last week, its apparent deep-seated divisions will see anther lengthy and arduous period of negotiation.

Global markets were also waiting with baited breath as Europe’s elite met for their third meeting on Greece. European finance ministers alongside IMF and ECB representatives are currently in talks in attempt to agree on an appropriate time-line for Greece to reduce their budget deficit – a crucial step before the next bailout instalment is unlocked. Still, it’s apparent markets are anticipating a favorable result, with continued Euro buoyancy showing there remains an element of faith Greece’s lenders will come through with the goods, either today or the next Eurogroup meeting on Monday.

Risk currencies generally reflected a risk neutral tone with slightly negative bias through most of the session, but for the most part held on to last week’s gains and began to creep higher at the close. Short term support around 104.4 US cents contained moderate Aussie weakness, before a late burst of energy from US equities assisted the local unit to highs and current levels of 104.69 US cents.

Data on the local docket today includes the CBAHIA Housing affordability index, however we anticipate this be a relatively low tier theme and will continue to watch regional equities for guidance, which will no doubt be helped or hindered from feedback from the Euro region as European Finance ministers wrap up their meeting on Greece. At the time of writing the Australian dollar is buying 104.6 US cents.

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