Australia: Discussions between France and Germany saw them come to an agreement to work with the ECB for a compromise deal to ensure that Greece does not default on its debt. This was a significant change from the view that Germany’s Angela Merkel expressed earlier where existing bondholders should carry a “substantial” burden of any rescue.

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There seems now to be universal opinion in the EU that a combination of the rollover of existing debt, new funding, privatisation and tough austerity measures will be the result. With the immediate pressure off, the AUD kicked back from the 1.0500 levels and equity markets in Europe and the US all improved.

With the major indices all rising, the immediate future path of the AUD and equity markets will be probably driven by the Greek debit situation. With the IMF lowering again their predictions of US growth for 2011 to 2.5% from 2.8%, commodity currencies like the AUD will feel some of the effects of lower predicted growth. This week the AUD is likely to be driven by the Greek situation although the release tomorrow of the RBA’s minutes from their recent meeting will be looked at closely for further clues of the timing of any interest rate rises in the future.

Majors: Apart from the ongoing Greek dramas; data out of the US was mixed, with the University of Michigan consumer confidence index for June falling from 74.3 to 71.8. Another index of leading indicators rose more than expected. With oil continuing to decline to US$93 a barrel for WTI crude this may translate into more optimism for the US consumer which would affect short term growth prospects in the US.

The EUR/USD starts the week in the high 1.4200’s will move as the Greek debt situation changes since there still is a lot of work to do before the overall issue is resolved. We expect to see continued volatility in the major currencies in the near future.

Economic Calendar
20 JUNE NZ Manufacturing Activity Q1
EU Euro-zone Current Account APR
JN Merchandise Trade Import / Exports MAY

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