If enough banks borrow in the European Central Bank's refinancing operation, risk currencies could get a lift.
When the European Central Bank last December offered low-cost refinancing to banks, they snapped up 489 billion euros worth and risk assets took off. So what's on tap for the latest round, coming Wednesday?
"My expectations are very similar to the December take-up," says Amelia Bourdeau, director of foreign exchange at Westpac Institutional Bank. And she believes that "investors want to see if we can break the near term ranges in either direction in commodity currencies."
That's why Bourdeau has come up with a playbook for the refinancing operation, known as the LTRO. If banks borrow less than 480 billion euros, Bourdeau says investors will worry that the markets are too illiquid, and it will be time to buy the safe-haven greenback against the Canadian dollar.