29/06/2015 04:26 AST
The euro has plunged nearly 2 per cent against the US dollar in the first signs of the market turmoil about to be unleashed by Greece's failure to agree the terms of a bailout package with its European Union and International Monetary Fund creditors.
In early Asia-Pacific trade, the common currency was fetching just below $US1.10, around lows for the month, as traders and investors headed for safe-haven currencies such as the greenback, yen and Swiss franc.
The Australian dollar also succumbed to an early bout of selling, dropping about half a US cent, to US76.09¢. Against the euro, however, it was up about 1 per cent.
The Japanese, Swiss and British currencies were also sharply up against the euro.
Analysts expect further upheaval as Asian equity markets open, with China's weekend cut to interest rates also weighing on trade.
National Australia Bank senior currency strategist Emma Lawson says the move by the People's Bank of China may have negative connotations.
The quarter-percentage-point cut to interest rates and easing of reserve requirements for some banks was expected, she said, "but likely came in response to the ongoing, and relentless, decline in the equity market". The Chinese equity market closed down 7.4 per cent on Friday.
Monday's focus, however, remains Greece, whose shock decision at the weekend to put to a July 5 referendum reform measures demanded of it by creditors could wipe between 2 and 4 per cent from key equity markets, according to Westpac senior currency strategist Richard Franulovich.
He also expects bond yields on the main markets to drop by between 15 and 25 basis points as investors pile into lower-risk assets.
"Fear and uncertainty over the consequences of next week's referendum will of course see Greek depositor withdrawals accelerate sharply," he added.
To counter this, Greece has ordered its banks to shut on Monday, pending further capital controls. However, the European Central Bank has said it will maintain the emergency liquidity assistance which has been helping keep the Greek banking system solvent.
Greece looks likely to miss a bundled-up €1.6 billion ($2.3 billion) payment due to the International Monetary Fund (IMF) on Tuesday. Although non-payment may not constitute a formal default, being in "arrears" could trigger a block on any further assistance from the multilateral lender, according to IMF director Christine Lagarde,
Although market fallout from the Greek crisis is expected to last at least until the weekend's plebiscite, long-term contagion will be contained, according to most experts. This is partly because private-sector exposure to Greek debt has been cut by almost 85 per cent in the last five years.
"While the unfolding situation in Greece could spark some contagion fears, it must be remembered that the broader situation in the eurozone is not the same as it was in 2010 or 2012," said Commonwealth Australia Bank's senior currency and rate strategist, Peter Dragicevich.
"Greece may generate some market turbulence, given the uncharted territory we are in, but it should not generate the same sustained systemic fears for financial markets or the global economy as it did in the past," he said.
Financial Review
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