French Political Risk Simmers Again
Risk off sentiment has crept back to the fore as the markets are in a sulk as dealer attempt to decipher the Fed rate trajectory beyond March while shifting their focus to geopolitical concerns as the French election risk continues to simmer. Alain Juppe, seen as a possible replacement for the scandal hobbled conservative candidate Francois Fillon announced; he has no intention to run in the presidential race. Juppe was viewed as more conservative than Fillon and would appeal to a wider element of France’s conservatives and diminishes the odds of an ultra right wing Le Pen victory
Not lots of anticipation regarding today’s Reserve Bank of Australia meeting with the futures curve as flat as a pancake, indicating zero expectations on the rate front. With the RBA widely expected to leave rates unchanged in the face of mounting household debt, a change in guidance is equally unlikely. Steady as she goes should be the course directed from the RBA captain.The tail risk for the event is certainly a Hawkish one if any.
AS with most G10 currencies overnight, the Aussie spent most of Monday consolidating as the various market themes and drivers continue to unfold. While Fed and Fiscal continue to dominate the early headlines, ECB and EU risk are starting to pick up steam again. With the later weighing on equity markets, the Aussie simply does not trade well at the slightest hint of risk aversion.
With the markets all in on a March rate hike was not ample support to push the market through the critical 115.00, dealers quickly took profit, and the dollar has failed to pick up any real momentum since.And with equity markets looking a bit worse for wear after the recent French election headlines the key 115 seems too far of a reach at this time unless equities reverse significantly higher.
While election headline risk had abated somewhat, I’m convinced there remains considerable political risk over the coming months but for now with EU interest rate expectations rising, and 1.05 level holding very firm, the EURUSD is not the markets choice to express a long dollar bias. But on the flip side, it’s hard to get excited about the EURO despite the improving macro & inflation trends, at least until the ECB clearly signals a shift in policy. But given the overall balance of risk facing Europe, we should not expect that change to occur at Thursday’s ECB meeting