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RBA leaves rates unchanged

Written by Sam Coxhead on December 7th, 2010.      0 comments

 2:44 PM (AEST) The RBA left the cash rate unchanged as completely expected. Their comments are always a good insight to the markets and I have copied them below.
 
The reaction to today’s statement has been somewhat muted, with just a 10pts sell off or so. All eyes are on the ongoing credit issues that are circling, particularly in Europe.
 
Of note today I have seen more and more discussion on the possibility of the spread of this loss of credit confidence outside Europe. Sub-prime in the US first, European Govt debt second, and possibly a burst of the crazy property markets in China and India next?!?!?  Whilst hard to comprehend, should this play out at some stage it would certainly mean the NZD and AUD would move considerably lower in value. Food for thought.
 
          Last 24 hours trade
  Current level Pre-RBA Chge since RBA   Low High
NZD/USD 0.7604 0.7611 -0.1%   0.7578 0.7650
AUD/USD 0.9893 0.9912 -0.2%   0.9845 0.9913
NZD/AUD 0.7687 0.7677 0.1%   0.7665 0.7728
AUD/NZD 1.3008 1.3026 -0.1%   1.2939 1.3046
NZD/GBP 0.4834 0.4836 0.0%   0.4821 0.4856
NZD/EUR 0.5702 0.5702 0.0%   0.5696 0.5723
NZD/JPY 62.65 62.68 0.0%   62.50 63.39
NZD/CAD 0.7657 0.7658 0.0%   0.7628 0.7681
 

 RBA Statement :
Number 2010-30
Date 7 December 2010
Embargo For Immediate Release
Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per cent.
Since the previous Board meeting, concerns about the creditworthiness of a number of European governments have again become the main focus of financial markets, with a marked rise in sovereign bond spreads for some euro-area countries and an increase in volatility. At the same time, recent data suggest that the Chinese and Indian economies have continued to grow strongly and price pressures, particularly for food, have picked up in China as well as a number of other economies in Asia. Modest growth is continuing in the United States.
For Australia, the terms of trade are at their highest level since the early 1950s, and national income is growing strongly as a result. Recent information indicates that, as had been expected, private investment is beginning to pick up in response to high levels of commodity prices. In the household sector thus far, there continues to be a degree of caution in spending and borrowing, which has led to a noticeable increase in the saving rate. Asset values have generally been little changed over recent months and overall credit growth remains quite subdued, notwithstanding evidence of some greater willingness to lend.
Employment growth has been very strong over the past year, though some leading indicators suggest a more moderate pace of expansion in the period ahead. After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year.
The exchange rate has risen significantly this year, reflecting the high level of commodity prices and the respective outlooks for monetary policy in Australia and the major countries. This will assist, at the margin, in containing pressure on inflation over the period ahead. Over the next few quarters, inflation is expected to be little changed, though it is likely to increase somewhat over the medium term if the economy grows as expected.
Following the Board's decision last month to lift the cash rate, and the subsequent increases by financial institutions, lending rates in the economy are now a little above average. The Board views this setting of monetary policy as appropriate for the economic outlook.
 

Weekly FX Update - 6 Dec 2010

Written by Sam Coxhead on December 6th, 2010.      0 comments

Currency Commentaries:

Click to access our currency pair reports:  
NZD/USD                                      AUD/USD                                    GBP/USD
NZD/AUD (AUD/NZD)                    AUD/GBP (GBPAUD)                    GBP/EUR (EUR/GBP)
NZD/GBP (GBP/NZD)                    AUD/EUR (EUR/AUD)                   GBP/RAND
NZD/EUR (EUR/NZD)
NZD/CAD                                                            
NZD/RAND
NZD/YEN
 

Major Announcements last week:

  • Canadian GDP -.1% , but unemployment dips to 7.6%, a two year low
  • Australian GDP and Retail Sales disappoint at +.2% and -1.1% respectively
  • US unemployment rises to 9.8%, negates gains in manufacturing and housing numbers
  • Fed chairman Bernanke states could use more QE if required
  • Eurozone Govt debt issues remain center stage
  • ECB bond purchase program alleviates short term pressure
  • ECB Emergency Bank Funding scheme in extended
  • UK manufacturing numbers pick up while housing continues to sag 
 

Market Overview:

Last week was action packed. With moves being accentuated by low levels of liquidity, it was a game of two halves. The first half of the week was dominated by further deterioration of the peripheral state Govt debt situation in Europe, and the US dollar strength that came with it. After the release of detail on the proposed Irish bailout, focus turned to other member states of Portugal, Spain and even Belgium. All eyes were on European Central Bank (ECB) head Jean Claude Trichet’s scheduled speeches, as he laid out the plans to extend the emergency bank funding liquidity measures. The ECB have been actively buying peripheral member state Debt also. That has seen funding costs, and spread between peripheral state and German debt, retreat from their highs. These bond purchases have proven to be a successful mechanism in the short term to contain the costs of borrowing. Debate now surrounds whether or not the ECB can extend this process into the medium term. An extension would require vast resources, the bulk being provided by the likes of Germany and France. It is easy to imagine how politically volatile this may become. Economic numbers continue to show a dislocation of fortunes between the smaller peripheral states and the power houses of Germany and France, with German numbers continuing to beat expectations.
 
The second half of the week was all about renewed downward pressure on the USD, as  the market took stock of the large recent gains it had made. The turnaround was reasonably quick as the speculative community rushed to sell USD’s they were holding. In general US data released recently has actually been reasonably positive. Early last week we saw improved consumer confidence, manufacturing and housing numbers. However the much anticipated employment numbers released on Friday were very disappointing. Market consensus was for the addition of 145,000 jobs in November. The number came out at only 39,000. The resultant unemployment rate rose from 9.6 to 9.8%. The initially market reaction was slightly muted. Then the market grasped the possibility that even further Quantitative Easing (QE – the effective printing of money) coming from the Federal Reserve may result. This meant the appetite for “risk/growth currencies”, increasing very quickly. Equities rallied, commodities rallied and the USD was sold heavily, especially against the Australian dollar. This reaction seems odd, considering employment data is a lagging indicator, and employment capacity can easily be absorbed after a period of low economic activity, like the one the US has experienced over the last two and a half years. Interestingly the US Fed Chairman seemingly played to the market by commenting that indeed the Fed could increase on its extra 600 billion dollar QE program. This type of reaction will do nothing to stop talk of competitive devaluation of currencies.
 
The performance of the Australian dollar is a classic example of how markets can act irrationally in the short term. Last week we saw two very disappointing economic data releases in the form of Australian GDP (+.2% vs expected +.5%) and Retail Sales (-1.1% vs expected +.4%), and yet we saw the AUD appreciate from around .9600 to above .9900.  Tomorrow sees the announcement of the RBA cash rate decision.  Currently market consensus is cash rate will be just 25 points higher by December 2011. No change is expected tomorrow.
 
In New Zealand last week we saw broad based consumer confidence strength in the NBNZ Consumer Confidence survey, and some lower than expected Building Consents numbers. This points to a still patchy recovery as we head into the crucial Christmas season for  the retailing sector. The RBNZ on Thursday is also expected to leave the cash rate unchanged. The global risk appetite will probably provide the most direction for the NZD/USD this week.
 
UK economic data remains patchy. Housing numbers are still depressed, with manufacturing numbers showing the odd sign of strength, after benefitting from the continued low level of the GBP. Commercial construction figures are picking up, albeit coming from a very low vase.
 
The Canadian economy is continuing its gradual recovery. GDP numbers disappointed (-.1% vs +.1% expected), while employment numbers were the strongest in 2yrs with the unemployment rate dipping to 7.6%.
 
The Japanese outlook remains weary as retail sales numbers dipped into negative territory for the first time in five months. More neutrally, unemployment remained at 5.1% and the industrial production numbers slowed less than was expected.
 
In South Africa, while the domestic outlook remains slow, the fortunes of the Rand will be pegged to the markets appetite for risk, and the commodity prices that go with it.
 
Also of note is the seemingly fragile nature of confidence in China. Last week rumors of an interest rate hike one afternoon caused a 3% dip in the Shanghai Index in no time flat. The IMF has again warned China and India they should be taking measures to make sure that asset prices do not cause bubbles, especially with regards to the property markets. Brazil’s central bank increased “reserve ratios” to reduce liquidity and put downward pressure on inflation. As long as there are no asset price corrections in these emerging markets, they remain the largest areas of  global growth as internal demand, and infrastructure investment maintains  the momentum.  


Topics: Weekly FX December 2010
 

Australian Retail Sales disappoints

Written by Sam Coxhead on December 2nd, 2010.      0 comments

11.41 AM (AEST) Australian Retail Sales just released showed a fall of 1.1% against the market expectation of +.4%. The Trade Balance was better than expected at 2.63B against an expectation of 2.07B . With the Retail Sales number being the focus the AUD has dipped. Interestingly the market positioning was such that the NZD has been bought as “sold NZD/bought AUD” positions are reversed. The buying of NZD against the selling of AUD has pushed the NZD marginally higher on all cross rates.
 
Overnight saw a reversal of some of the risk aversion that has occurred over the last week. This profit taking was spurred on by rumours the ECB will today come out  and action stern measures to steady the market against the pressures on the Govt debt in the Eurozone.
 
This possibility of Quantitative Easing from the ECB has seen Equities and commodity markets rally. The proof will be in the detail, so this coming session in Europe looks to be a very interesting one.
 
          Last 24 hours trade
  Current level Pre-Aust R.S Chge since Aust R.S   Low High
NZD/USD 0.7490 0.7483 0.1%   0.7394 0.7511
AUD/USD 0.9631 0.9664 -0.3%   0.9533 0.9698
NZD/AUD 0.7774 0.7733 0.5%   0.7718 0.7774
AUD/NZD 1.2863 1.2931 -0.5%   1.2883 1.2956
NZD/GBP 0.4800 0.4791 0.2%   0.4756 0.4808
NZD/EUR 0.5713 0.5702 0.2%   0.5681 0.5730
NZD/JPY 63.03 62.94 0.1%   61.85 63.24
NZD/CAD 0.7630 0.7618 0.2%   0.761 0.7640
 

Australian GDP disappoints

Written by Sam Coxhead on December 1st, 2010.      0 comments

11.45 AM (AEST) Australian GDP figures just released saw just a .2% rise for the third quarter against an expectation of a +.5% rise.  As one would expect this saw a drop in the AUD, by about 50pts initially. This will certainly add to calls that the RBA will keep interest rates on hold for some time. This slow down in the economy would have been  driven by higher interest costs, a reduction in Govt stimulus and reduced exports due to the stronger currency.
 
          Last 24 hours trade
  Current level Pre-Aust GDP chge since Aust GDP   Low High
NZD/USD 0.7415 0.7428 -0.2%   0.7394 0.7536
AUD/USD 0.9554 0.9606 -0.5%   0.9539 0.9660
NZD/AUD 0.7762 0.7732 0.4%   0.7717 0.7760
AUD/NZD 1.2883 1.2933 -0.4%   1.2886 1.2958
NZD/GBP 0.4766 0.4771 -0.1%   0.4760 0.4803
NZD/EUR 0.5714 0.5716 0.0%   0.5664 0.5734
NZD/JPY 61.96 62.10 -0.2%   61.86 62.9
NZD/CAD 0.7613 0.7614 0.0%   0.7568 0.7655
 

Risk aversion continues

Written by Sam Coxhead on December 1st, 2010.      0 comments

The European and US sessions have continued to see the market seek safe haven assets. Along with US Treasuries and gold , the USD and JPY have been the main beneficiaries.
 
Concerns deepen over European Govt debt, with the focus spreading to Belgium as well as Portugal , Spain and to a lesser extent Italy. The fortunes of the EURO were not helped when Eurozone unemployment numbers showed the unemployment rate of 10.1% and for under 25s 20.1% and you can double those rates for Spain.
 
The one saving grace was better than expected data in the US coming in the form of manufacturing and consumer confidence numbers. As these were released the EUR, NZD and AUD were pulled off the lows, and we saw a little profit taking  to drag them a touch higher again. I think its fair to say that the EURO has a high probability of further downside in the short term and it will be a question of what extent the AUD and NZD are dragged with it.
 
Canadian GDP slipped to -.1% vs expected +.1%, which led to weakness for the CAD on all cross rates.
 
Interestingly, rumours in China yesterday of a further interest rate rise spooked the market, with the Shanghai index off 3% at one stage. For obvious reasons this negatively impacted the AUD sentiment as well.
 
Australian GDP today at 11.30am (AEST) with the market expecting +.5%
 
    Last 24 hours trade
  Current level Low High
NZD/USD 0.7460 0.7394 0.7477
AUD/USD 0.9615 0.9539 0.9660
NZD/AUD 0.7749 0.7716 0.7763
AUD/NZD 1.2904 1.2882 1.2960
NZD/GBP 0.4785 0.4765 0.4803
NZD/EUR 0.5724 0.5664 0.5734
NZD/JPY 62.34 61.86 62.93
NZD/CAD 0.7637 0.7567 0.7655