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Daily Commentary 06/02/15

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Greek and German finance ministers “didn’t even agree to disagree” The long-awaited meeting between German finance minister Schäuble and Greek finance minister Varoufakis turned out more or less as expected. Schauble reiterated Germany’s “tough love” position that Greece needs to continue its reforms to improve its competitiveness and should continue to work with troika as per prior agreements. Debt cut for Greece was not even on the table. The meeting following ECB’s decision on Wednesday to stop accepting Greek bonds to finance Greek banks, puts pressure on the new-elected government to come up with an agreement and continue to work with troika to avoid a possible “Grexit”.

The Reserve Bank of Australia (RBA) released its quarterly statement of monetary policy, which includes updated economic growth and inflation forecasts. The statement, which was less dovish than expected, showed that the Bank revised down its outlook for inflation and growth rate for the first half of 2015. The Australian dollar gained however, as they kept the annual outlook for inflation within the Bank’s target range of 2%-3% and they expect the annual growth rate to pick up later this year. RBA cut its benchmark interest rate by 25 bps earlier this week, and given their assessment in this quarterly statement the reduction was appropriate to support demand and sustain growth and inflation outcomes consistent with their target. AUDUSD has recovered all of its losses following Tuesday’s rate cut, and given the optimistic statement it could extend its gains towards the key psychological level of 0.8000 in the near future.

The highlight of the day will be the US non-farm payrolls for January. The market consensus is for an increase in payrolls of 230k, down from 252k in December. The strong ADP report on Wednesday, suggested that nonfarm payroll figure may come in over 200k again, consistent with a firming labor market (although there is a lot of variation between the ADP and the NFP reports). In such a case, it will show that the US economy has added at least 200k jobs for 12 consecutive months. At the same time the unemployment rate is forecast to remain unchanged at 5.6%, while average hourly earnings are expected to accelerate a bit on a yoy basis. Such figures would be consistent with the FOMC’s more confident view about the employment market. In the statement following last week’s meeting, the Committee referred to “strong job gains” and a “solid pace” of growth, thereby another strong reading could support the dollar. However, unless it is accompanied by a solid wage growth, the decline in the unemployment rate and a figure above 200k are unlikely to convince the market for an early rate hike.

During the European day, Norway’s industrial production for December is forecast to fall at a slower pace than in November. This is likely to support the Norwegian krone.

Canada’s unemployment rate for January is expected to have remained unchanged at 6.7%, while the net change in employment is expected to show a rise after December’s decline. Nevertheless, following the strong downward employment report revisions in January, the market may remain skeptical about the figure and push USDCAD higher, perhaps on concerns for further revisions in a later stage.

As for the speakers, Atlanta Fed President Dennis Lockhart speaks during the US session.

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