Talking Points:
- Euro to Look Past May Inflation Data, Focus on Greece-Related News Flow
- Australian Dollar Gains as RBA Disappoints Bets on Dovish Shift in Rhetoric
The preliminary set of May Eurozone CPI figures headlines the data docket in European trading hours. The headline year-on-year inflation rate is expected to rise to 0.2 percent, the highest in six months. The outcome seems unlikely to meaningfully drive the euro, however, considering its limited implications for near-term ECB policy bets.
Rather, the single currency will look to Greece-related news-flow for direction cues. Negotiations have entered the proverbial 11th hour amid worries that Athens may fail to repay over €300 million due to the IMF on Friday, triggering events leading to insolvency and a possible ejection from the Eurozone.
Key figures from the lender side of the impasse – German Chancellor Merkel, IMF Managing Director Lagarde, ECB President Draghi, French President Hollande and EC President Juncker – met to develop a list of conditions for Greece to meet in exchange for funding a last-ditch attempt to avoid deeper crisis. Markets will keep a close eye on follow-up headlines to gauge how the effort will progress in the days ahead.
The Australian dollar underperformed in overnight trade, rising over 1 percent on average against its top counterparts, following the RBA monetary policy announcement. While policymakers’ decision to keep the cash rate unchanged at 2 percent was widely expected, a parallel drop in the Aussie and front-end bond yields in recent weeks hinted at pre-positioning for a dovish forward guidance turn. That did not materialize, with Governor Glen Stevens and company keeping to a non-committal, data-dependent posture.
