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NZD the star performer

Written by Sam Coxhead on January 18th, 2011.      0 comments

9:00AM (NZT) The New Zealand dollar was the star performer in holiday affected markets offshore overnight. The NZD added between .25 and 1.5% against its major trading partners as its food producing status kept it high with investor demand. The EURO gave up some ground after last week's surprisingly strong performance. In the absence of any real economic data, focus was on the EU meeting of Finance Ministers to discuss the possibility of an increased European Financial Stability Facility (EFSF). Germany's attitude and altermate participation remains the key, as it will be providing the bulk of the extra funds. There is no Australasian data today , so all eyes on the Asian equity markets for the lead. The Shanghai Index opened down 2.25% yesterday in the wake of the Chinese increase in the Banks Reserve Requirement Ratio (RRR) that curbs bank lending, easing inflationary pressure.

    Last 24 hours trade
  Current level Low  High
NZD/USD 0.7725 0.7656 0.7749
AUD/USD 0.9942 0.9863 0.9969
NZD/AUD 0.7769 0.7738 0.7783
AUD/NZD 1.2871 1.2843 1.2916
NZD/GBP 0.4863 0.4822 0.4869
NZD/EUR 0.5811 0.5716 0.5825
NZD/JPY 63.89 63.43 61.01
NZD/CAD 0.7625 0.7581 0.7658
 

Direct FX Weekly Update - 17 Jan 2011

Written by Sam Coxhead on January 17th, 2011.      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:

  • Australian Retail Sales as expected, Home Loans higher and Employment growth softer.
  • NZIER Quarterly Survey of Business Opinion stablises, points to growth in 3rdQTR
  • BoE leaves cash rate unchanged, House Prices softer, Manufacturing and PPI higher
  • ECB leaves cash rate unchanged but makes hawkish comments, EURO credit spreads narrow
  • US Retail Sales and  Consumer Sentiment weaker, PPI and Industrial Prod. Stronger
  • Chinese Trade Balance lower, raise “Reserve Required Ratio” by another 50bpts to slow credit growth
  • Canadian Construction numbers lower, Business Outlook stronger


Market Overview:

The past week has proven to be a very interesting one in the foreign exchange markets. The major market moving theme of the week has been the shift in focus in Europe from the Govt debt concerns, to that of the hawkish nature of the European Central Bank (ECB), and their focus on inflation. ECB head Trichet made comments citing inflationary pressure and re-iterated the old ECB attitude of keeping staunch watch on inflationary pressure. The focus coming off Govt debt in Europe was helped by talk of increasing the European Financial Stability Facility (EFSF) to around 500 billion EURO, at this week’s Finance Ministers meeting. This gave investors confidence that should a larger member state such as Spain come under pressure, that the EFSF would be able to accommodate a funding package. The talk of an increased EFSF saw debt auctions of Portugal, Spain and Italy issue their full quota’s, albeit at more expensive interest rates than their previous respective auctions. I have no doubt that increased commitment from both China and Japan to purchase various European debt has also caused the sentiment to turn.  After starting the week with the EURO under considerable pressure, the ECB comments caught the market off guard. Adding to this was talk of large “Fund currency re-allocation flows”, which means that these Funds had to sell other currencies and buy EUR, after being “underweight” EURO.  The resulting price action saw the EURO appreciate very quickly and large numbers of investors were forced to exit “sold” EURO positions. Accordingly the EURO has made up ground on almost all cross rates. Whether or not this move can be sustained remains to be seen. Fundamentally the reduction in Government spending still has to eventuate on order to get peripheral member states accounts back into health. This process will more certainly take years.
 
In Australia the fallout from the horrific flooding continues. There is also forecast of further rain which could see further flooding in other states such as Victoria. The Australian dollar was sluggish as a consequence, and gave up ground on most cross rates. These floods will definitely have an effect on productivity, and the forecasts for interest rate hikes from the Reserve bank of Australia (RBA) have been pushed back, with just 25pts of hikes priced currently for 2011. Employment growth numbers were also a touch softer in Australia, but the Unemployment Rate dipped to an impressive 5.0%. Also weighing will be the fact that the Chinese have again increased “Reserve Required Ratio” by 50pts in a further attempt to curb lending growth.
 
In New Zealand the only economic data release of note last week was the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion. This saw a stabilising in sentiment after previous quarters had seen quite sharp drops in the outlook. The survey points towards a pick up in the 3rdquarter and an avoidance of a double dip recession in New Zealand. The NZD gained against the AUD, but gave up ground against the resurgent EURO and GBP.
 
In the US there was mixed data release during the course of the week. Wholesale Inventories  fell as sales increased. The “Beige Book” which is an economic activity report used by the US Fed to gauge activity across 12 major districts pointed towards increased activity, and even slightly increased employment. The latest Retail Sales numbers came out weaker than expected and survey’s of consumer sentiment were also slightly softer than expected. This patchy nature of data is typical for an economy emerging from a deep recession.
 
The UK saw further soft housing numbers but stronger manufacturing data released. The renewed call for tough treatment of the persistent inflationary pressure gave the GBP support as the prospect of higher interest rates in the UK over 2011 buoyed investors. Prime Minister Cameron came out with strong talk that the UK would not be contributing to any further funding packages in Europe also helped bolster investor confidence in the GBP.
 
Meanwhile commodity markets remained mixed and volatile. Equity markets continue to benefit from the cheap money awash around the globe, and many Indexes recorded highs not seen since the Lehman Brothers collapse as the world economy descended into the global financial crisis.
 

 

EURO bounces

Written by Sam Coxhead on January 14th, 2011.      0 comments

 9:45AM (NZT) The EURO staged a mighty bounce in the offshore session as sucessful debt auctions from Spain and Italy added to the positive trend following Portugals auction yesterday. For the time the fear has reduced across all member state debt. Adding to the EURO resurgence were left field comments by ECB head Trichet with regards to acting hard on inflation. These comments flushed out many sold EURO accounts which saw the single currency stablise at 1.3350 at the end of the New York session.

The USD was broadly under pressure and this significant move took place. The AUD was a notable underpreformer as the Queensland floods temper investor enthusiasm for the lucky countries dollar.

With no data in Australasia today, all eyes will be on the start of the European session for direction ahead of the Retail Sales  and CPI numbers in the US tonight.

    Last 24 hours trade
  Current level Low  High
NZD/USD 0.7679 0.7611 0.7699
AUD/USD 0.9955 0.9933 1.0009
NZD/AUD 0.7712 0.7649 0.7712
AUD/NZD 1.2967 1.2967 1.3073
NZD/GBP 0.4851 0.4823 0.4881
NZD/EUR 0.5753 0.5852 0.5896
NZD/JPY 63.57 63.18 63.85
NZD/CAD 0.7608 0.7506 0.7618


 

Australian Unemployment mildly disappoints

Written by Sam Coxhead on January 13th, 2011.      0 comments

2:00PM (AEST) The Australian employment numbers just released showed jobs growth of just 2.3k against a market expectation of 25.2k, but the unemployment rate did drop to 5.0% against the expectation of 5.1% , this can be put down to a lower participation rate which means less people are actively looking for work. My read on these numbers is that there remains no real meaningful unemployment in Australia at this stage.
 
This has caused a 20-30pt sell off in the AUD which does not really dent the overnight move to the topside as rumoured Fund Currency re-weightings pushed the AUD, GBP and even the EUR higher. Apparently these flows are still around, will moves will happen in the London time zone when liquidity is deepest.
 
Also cushioning the AUD fall will be the fact that flood waters did not peak as high as expected in Brisbane, although the devastation still remains immense.
 
The NZD has risen slightly after the Australian data as sold NZD/AUD positions are unwound.
 
          Last 24 hours trade
  Current level Pre-AU Employ Chge since AU Employ   Low High
NZD/USD 0.7629 0.7623 0.1%   0.7566 0.7640
AUD/USD 0.9945 0.9957 -0.1%   0.9812 0.9965
NZD/AUD 0.7674 0.7657 0.2%   0.7641 0.7723
AUD/NZD 1.3031 1.3060 -0.2%   1.2948 1.3087
NZD/GBP 0.4844 0.4841 0.1%   0.4823 0.4863
NZD/EUR 0.5814 0.5812 0.0%   0.5798 0.5857
NZD/JPY 63.40 63.30 0.2%   63.02 63.39
NZD/CAD 0.7530 0.7520 0.1%   0.7469 0.7536 
 

USD under pressure

Written by Sam Coxhead on January 13th, 2011.      0 comments

11:30AM (NZT) Overnight saw the EUR, AUD and GBP appreciate as the USD was sold by Funds that were apparently reweighting their currency holdings. There is possibility of further reweighting flows to come today, and should these eventuate, and opportunity to sell will be presented. The EURO was also boosted by the news that Portugal was able to complete their Bond Auction as demand was stronger than expected. There seems to have been some decent support from both the Chinese and Japanese central banks. It remains to be seen if this uptick in demand for peripheral EURO debt can be sustained. 

Australian Employment numbers are focus for the day with the market expecting an addtional 25.2k jobs to be added and the Unemployment rate to reduce by .1% to 5.1%

 

Aussie Home Loan numbers jump

Written by Sam Coxhead on January 12th, 2011.      0 comments

12:00 PM (AEST) Australian Home Loans data just released showed an increase on the November month of 2.5% against a market expectation of -1.2. The market showed little focus on this number after taking the AUD 10-20pts higher initially, given what is happening in Queensland. Employment numbers in Australia tomorrow should garner more interest with the market expectation that 25.3k of jobs will have been added to reduce the unemployment rate to 5.1%
Latest commentary puts estimations of the cost of these devastating floods at .3-.5% of GDP for 2011. The AUD has been understandably put under pressure as a result. Since the lows just prior to Christmas the NZD has outperformed the AUD by around 4%, and most other currencies are in a similar situation.
The EURO’s fall stablised overnight as the costs of funding for peripheral states contracted a little. News that the EU are looking at increasing the size of the European Financial Stability Fund (EFSF) and Japan’s commitment to purchase 20% of the next tranche of funding for the EFSF next week, have helped calm the markets.
          Last 24 hours trade
  Current level Pre-Home Loans Chge Home Loans   Low High
NZD/USD 0.7594 0.7595 0.0%   0.7564 0.7632
AUD/USD 0.9834 0.9831 0.0%   0.9807 0.9955
NZD/AUD 0.7723 0.7727 -0.1%   0.7672 0.7733
AUD/NZD 1.2948 1.2941 0.1%   1.2931 1.3033
NZD/GBP 0.4867 0.4866 0.0%   0.4862 0.4902
NZD/EUR 0.5852 0.5851 0.0%   0.5845 0.5896
NZD/JPY 63.27 63.28 0.0%   62.88 63.46
NZD/CAD 0.7514 0.7509 0.1%   0.7508 0.7582
 

EURO slide stablises as talk of increased EFSF surface

Written by Sam Coxhead on January 12th, 2011.      0 comments

11:20 AM (NZT) The slide in the value of the EURO abated in the offshore session as talk of increased volumes of cash for the European Financial Stability Fund (EFSF) surfaced. This coupled with the annoucement that Japan would buy 20% of the tranche to be issued next week, helped the EURO stall it's weakness. Further buying of the GBP/EUR cross gave the GBP a boost on most crosses.

In Australia the massive devastation of the Queensland flooding continues as the wall of water works it's way through the river system and beyond. Initial estimates are currently placing the economic cost of this diaster at around .3% of GDP for 2011. For obvious reasons the Australian dollar is under a little pressure on all cross rates.

The inability of the AUD to rise as the flooding plays out has meant that any rally in the NZD will be muted at best. Having made up around 4% against the AUD since the low prior to the New Year, progress from here will be grinding at best.
    Last 24 hours trade
  Current level Low  High
NZD/USD 0.7597 0.7564 0.7632
AUD/USD 0.9848 0.9823 0.9955
NZD/AUD 0.7715 0.7672 0.7722
AUD/NZD 1.2961 1.2950 1.3033
NZD/GBP 0.4867 0.4860 0.4902
NZD/EUR 0.5857 0.5852 0.5896
NZD/JPY 63.31 62.88 63.46
NZD/CAD 0.7532 0.7508 0.7582
 

NZ Building Consents rise

Written by Sam Coxhead on January 11th, 2011.      0 comments

1:55 PM (NZT) New Zealand Building Consents bounced back in November, mainly thanks to increased activity in retirement villages, educational facilities and factories.

The overall number was 8.8% higher on October and the thrid highest in the last  two years in dollar value.

The NZD was relatively unchanged on the announcement and as of 1:55PM was trading at .7604 to the USD and .7685 to the AUD.
 

NZIER Quarterly Survey of Business Opinion

Written by Sam Coxhead on January 11th, 2011.      0 comments

10:25 AM (NZT) This morning the NZ Institute of Economic Research released their Quarterly Survey of Business Opinion. It showed a reading of 8 , which is a slight improvement on the Oct survey which was 6. A level above indicates optimism.
 
It shows that the economy has rebounded in the Dec quarter after contracting in the September quarter. But activity has been patchy, with most activity being concentrated in larger firms in the upper North Island.
 
Inflationary pressure eased in the December quarter which gives the RBNZ a little more room in their projections. Hiring and investment intentions also indicate that the attitude is changing, but the NZIER states that these need to accelerate further to drive a sustainable recovery.
 
          Last 24 hours trade
  Current level Pre-QSBO Chge since QSBO   Low High
NZD/USD 0.7637 0.7633 0.1%   0.7554 0.7646
AUD/USD 0.9955 0.9963 -0.1%   0.9878 0.9982
NZD/AUD 0.7671 0.7663 0.1%   0.7618 0.7682
AUD/NZD 1.3036 1.3050 -0.1%   1.3017 1.3126
NZD/GBP 0.4905 0.4900 0.1%   0.4876 0.4904
NZD/EUR 0.5899 0.5892 0.1%   0.586 0.5901
NZD/JPY 63.20 63.16 0.1%   62.77 63.36
NZD/CAD 0.7584 0.7581 0.0%   0.7516 0.7594
 

Direct FX Weekly Update - 10 Jan 2011

Written by Sam Coxhead on January 10th, 2011.      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:

 

  • US Factory order rise much more than expected in November
  • FOMC minutes show economy growing faster than expected
  • UK Manufacturing numbers stronger than expected
  • US Non-manufacturing activity higher than expected
  • Canadian unemployment rate drops to 7.6% from 7.7%
US employment numbers mixed-unemployment rate lowers to 9.4% 

Market Overview:

In the period between Christmas and New Year, the level of liquidity or depth of the market deteriorated to levels not seen in years. These very low levels of liquidity saw moves accentuated, and we saw extremes in a number of currency pairs as larger market participants scrambled to get within end of year allocations. There is little point dwelling on the market through this period as the most that can be garnered from it is that it is best to stay out of market when these conditions prevail. Interestingly over the Christmas break, China surprised the market with a 25pt hike in their core interest rates as part of a program to reel in their rampant inflation. Over the past months they have utilized a number of tools to attempt to curb inflation, and it will be interesting to see how this plays out over the coming year.
 
Starting into the New Year we saw a reversal of most of the extremes that were reached in the week previous. The US dollar has been in demand for the most part, and this has seen it appreciate by over 2.5% against the basket of its major trading partners. This has been driven by the mostly positive economic data flowing from the US of late. Friday in the US saw the monthly employment numbers released. Whilst the headline Non Farm Payrolls number we weaker than the expected 150k at 103k, the previous two months were revised up by 70k and the unemployment number dipped to 9.4%. Once the market settled down after an hour or two after these numbers were released, most markets were relatively unchanged.
 
The big theme of the last week has been the underperformance of the EURO. The New Year has seen further focus on the Govt debt situation in Europe and in particular Portugal’s ability to finance itself by selling bonds.  Reports are that Euro-zone pillars Germany and France are putting pressure on Portugal to approach the EU/IMF for a funding program. If Portugal were to do this in a timely manner, it would make sense that pressure would be taken off other member states that are seeing funding prices rise, such as Spain and Belgium. Should Spain end up needing assistance, the current  bailout facilities at the EU would be almost completely tapped, and certainly see the EURO as single currency under considerable pressure. China has repeatedly vocalised its support for the EURO, and has been buying member state bonds actively, but at this stage their support has not been enough to stem the tide of rising funding costs for peripheral states.
 
The Australian dollar has quickly retreated from the post float high set before New Year of 1.0257 as the massive flooding in Queensland and USD resurgence helped turn sentiment for the time being. The Queensland flood damage has Australianpress suggesting that the flood impact will delay interest rate increases from the RBA. Also adding to the mix was a large down day for the commodity markets which saw the AUD, CAD, RAND and NZD all under pressure as commodities across the board quickly fell.
 
In the UK calls for interest rate hikes in 2011 have gathered a little stem. With increased Inflation Expectations of 3.5% for 2011, it can be expected that bias will have to sway at the Bank of England at the very least. Improving manufacturing and mortgage approvals numbers also adding weight to the Pound Sterling story, which will be balanced by the fortunes in Europe, being the major destination for UK exports.











 
 

Australian Retail Sales hits expectation

Written by Sam Coxhead on January 10th, 2011.      0 comments

11:42 AM (AEST) Australian Retail Sales for November just released showed a +.3% increase on October sales which was right on forecasts. This has seen a very slightly stronger AUD drag the NZD with it. With the flooding in Queensland and the efforts by the Chinese to curb inflationary pressure through a wide variety of different measures, the AUD has been heavy for the start of 2011. This week we have Australian Home Loan data on Wednesday and the Employment numbers on Thursday.
 
The EURO continues to see selling pressure as the Govt debt issues show no sign of easing. Portugal look to be under real pressure to accept some kind of funding package in the near future. Whilst the EURO remains weak , it is hard to see the NZD and AUD having a lunge to the topside against the USD. 
          Last 24 hours trade
  Current level Pre-AU Retail S. Chge AU Retail S   Low High
NZD/USD 0.7615 0.7599 0.2%   0.7561 0.7638
AUD/USD 0.9971 0.9950 0.2%   0.9918 0.9994
NZD/AUD 0.7636 0.7627 0.1%   0.7621 0.7643
AUD/NZD 1.3095 1.3111 -0.1%   1.3083 1.3121
NZD/GBP 0.4899 0.4884 0.3%   0.4874 0.4918
NZD/EUR 0.5901 0.5890 0.2%   0.5851 0.5901
NZD/JPY 63.17 63.07 0.2%   62.67 63.51
NZD/CAD 0.7555 0.7541 0.2%   0.7516 0.7555
 

USD remains in demand

Written by Sam Coxhead on January 7th, 2011.      0 comments

8:45 AM (NZT) The US dollar remains in demand pretty much across the board. The most dramatic capitulation being the EUR which remains under intense pressure as the European Govt debt issues come back into focus. Once the "option protected" level 1.3125 gave way, the move down to 1.30 was opened up with only Asian Central Bank (ACB) buying to soften the landing.  It has bounced slightly off its low of 1.2999 , but price action remains weak.

The focus for the market in the next 24 hours is the employment numbers due for release in the US. Market expectation is that 159k on jobs will have been added in the non-farm payrolls, and the unemployment rate will be 9.7%. If the non-farm payrolls number is over 200k, it could be expected that we would see further strength from the USD. In particular the USD/JPY seems to be lagging in its strength, with bond yields in the the US rising as they have , many are looking for the interest rate differential correlation to come to the fore again.

The NZD has slightly outperformed the AUD in the offshore session and the full economic impact of the devastating floods in Australia are assesed. Price action in the AUD does remain negative , although this will probably not eventuate to the full blown correction that the bears are looking for.

   
      Last 24 hours trade
  Current level Low  High
NZD/USD 0.7572 0.755 0.7688
AUD/USD 0.9947 0.9928 1.0016
NZD/AUD 0.7614 0.7556 0.7617
AUD/NZD 1.3134 1.3128 1.3235
NZD/GBP 0.4895 0.4871 0.4911
NZD/EUR 0.5820 0.5745 0.5826
NZD/JPY 63.08 62.78 63.33
NZD/CAD 0.7545 0.7515 0.7567 
 

Australian Building Consents lower

Written by Sam Coxhead on January 6th, 2011.      0 comments

11:55 AM (AEST) Australian Building Consents just released saw a number of -4.2% for the month of November against a market expectation of -3.6%. October was also revised lower to +8.3% from the first read of 9.3%. Little market reaction to this volatile number, but certainly worth noting as more focus comes on the Australian economic fundamentals this year.

In Asian markets the see equities a little perky which is giving the growth trades a little sparkle. Rumours are of a large option expiry at 4pm EST tomorrow in the EUR at 1.3125, so expect that level to remain defended for the being which may halt the resurgent USD's in these thin markets.
    Last 24 hours trade
  Current level Low  High
NZD/USD 0.7593 0.7558 0.7681
AUD/USD 0.9997 0.9956 1.0076
NZD/AUD 0.7595 0.7556 0.7646
AUD/NZD 1.3166 1.3078 1.3235
NZD/GBP 0.4895 0.4872 0.4924
NZD/EUR 0.5771 0.5741 0.5793
NZD/JPY 63.27 62.48 63.48
NZD/CAD 0.7563 0.7528 0.7661
 

Commodity currencies smacked lower

Written by Sam Coxhead on January 5th, 2011.      0 comments

8:45 AM (NZT) The commodity currencies have been led lower in the last 24hrs as the Australian dollar gives up some of the gains it saw in the thin trading markets between Christmas and New Year. The New Zealand dollar and the Canadian dollar under pressure also as the GBP bounces on some better than expected manufacturing and housing numbers. Also adding a boost to the recently beleaguered GBP is the rise in the inflation expectations to 3.5% for the coming year.

It would appear that we have seen the lows of the NZD against the AUD for the time being. In a market that sees the AUD as the barometer for global growth, this sudden pressure could well be a sign of things to come. While we have seen a bounce off the lows for the AUD,NZD and CAD, the bounce remains shallow at this stage.

    Last 24 hours trade
  Current level Low  High
NZD/USD 0.7673 0.7636 0.7756
AUD/USD 1.0058 1.0024 1.0200
NZD/AUD 0.7630 0.7587 0.7639
AUD/NZD 1.3106 1.3090 1.3180
NZD/GBP 0.4924 0.4888 0.5004
NZD/EUR 0.5767 0.5697 0.5798
NZD/JPY 62.97 62.54 63.37
NZD/CAD 0.7665 0.7604 0.7691