Newswires were buzzing overnight regarding an article, which suggests that Greece wants to cut out the IMF participation portion from the recently agreed upon financial aid plan. In addition, Greece has been rumored to be trying to fix or get details regarding some of the hazy specifics. Given the number of will EU member participants which signed the agreement, we doubt a carve-out or clarification will be very simple. However, from broader perspective this recent episode highlights the complications of actually executing the plan and introduces further uncertainty into FX markets. We doubt that the EU has the political will to ever fully execute a Greek bailout and the EUR should continue to suffer near-term. In the UK, PM Gordon Brown is widely expected to call a general election for May 6th (politics has been broadly negative for the GBP). Given the uncertainty surrounding the political events in the UK, the sterling will be highly reactive to news stories and politically biased conjecture. In Australia, the RBA hiked its policy rate by 25bp to 4.25% as was widely expected, the fifth increase in seven months. While the accompanying statement was slightly more hawkish than we had expected we still believe the RBA will pause. We are focusing on the statements it is appropriate for interest rates to be closer to average and today's decision is a further step in that process. Overall, the RBA is not looking to accelerate the process (we are looking for rate to stop at 5.00% by year's end). We see the downside risk to the AUD growing especially against currencies whose central bank are about to enter their tightening cycle, such as NZD and CAD (corrosion of interest rate differential & although Techs paint a different story). Interestingly, the central banks take on Greece is that concerns regarding some sovereigns appear to have been contained at this stage. Given the round of strong economic data from the US, combined with a light calendar earlier markets will be watching tonight's FOMC minutes release. Just to recap, last week's NFP printed at 162k best number since 2007 while Non-manufacturing ISM index rose further to 55.4 in March. FX traders view this as a positive signal and piled into the USD on the release (partially because it was positive and not as bad as the ADP report had suggested). As for the minutes, we don't see any shift in the core point that rates will stay exceptionally low for an extended period. The tone should be slightly more upbeat on the general economy, while debate on ending purchases of mortgage-backed securities should be limited. Overall, the event of the day should be broadly USD supportive.
Forex-Chart