Markets have had plenty of uninterrupted time to digest the Greek bailout package and Chinese reserve requirement hike. And from an FX perspective clearly the market see these events as EUR negative. However, other assets such as stocks and Greece specific CDS and rates have firmed, hinting to the possibility that the EUR is lagging other indicators. Yesterday the ECB's Governing Council suspended indefinitely the credit rating threshold in the collateral eligibility requirements for bonds guaranteed by the Greek. While the move takes away the focus on credit agency ratings, it does highlight the fact that the ECB is holding potentially an explosive balance sheet of bad Greek debt. Although the Greek bailout finally came this weekend, it failed to reassure the markets as policy-makers had hoped. The multi-year rescue package totaled €110bn - with the EU pledging €80bn and the remaining €30bn by the IMF. Although good news for Greece, the bailout funds did come with strings attached. Among them, a higher sales tax will be levied on selected goods while the Greek retirement age has been effectively raised from 53 to 67. The EU will conduct quarterly reviews of Greek finances to ensure proper fiscal management and that its economic obligations are being fulfilled. General opinion expected a bailout approved by Greece to be a positive for risky assets, but clearly global markets still hold their reservations.The RBA raised its interest rate to 4.5% from 4.25% for the sixth time after inflation accelerated and officials judged the nation is insulated from the Greece-sparked sovereign debt concerns. The AUDUSD fell to 0.9238 after RBA Governor Glen Stevens said today that interest rates for most borrowers will now be around average levels. Stevens is under pressure to extend a world-leading round of rate increases as Australia's economy accelerates, stoking inflation and property prices, which surged more than 20% annually. As the RBA closes in on their normalized policy rate and other countries ramp up other tightening cycle, the interest rate differential advantage enjoyed by the AUD should erode.
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