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NZD/AUD (AUD/NZD) AUD/GBP (GBPAUD)
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Major Announcements last week:
· German Business Sentiment 102.3 vs 102.7 expected
· US Consumer Confidence 60.6 vs 65.8 expected
· Preliminary US GDP 1.7% as expected
· US Pending Home Sales 2.4% vs 1.1% expected
· NBNZ Business Confidence 19.5 vs 15.1 previous
· Australian Building Approvals -17.3% vs -4.8% expected
· Australian Private CAPEX 3.4% vs 2.7% expected
· Canadian GDP +.2% vs +.1% expected
· Chinese Manufacturing Index 49.2 vs 49.8 expected (below 50 indicates contraction)
Last week proved to be as interesting as was expected in the financial markets. The conflicting pressures of slowing global growth, and the prospect of further monetary easing both played their parts throughout the week. Tension continues in Europe as this week’s European Central Bank (ECB) monetary policy announcement approaches. German resistance to ECB buying of stressed member debt is at the crux of the tension. Expect detailed measures of bond buying to be announced along with the reduction to the European cash rate to .50%. With so much expected from the ECB, the risk is that they disappoint at Thursday’s announcement. In the United States the run of positive economic data has continued for the most part. US Fed Chairman Bernanke did little to disappoint the market looking for further monetary easing at the next monetary policy announcement. Over the weekend further evidence of a slowing Chinese economy emerged. The official manufacturing numbers were weaker than expectation and this saw demand for the Australasian dollars once again under pressure.
The negative sentiment in the Australian economy continued this week. Much has been made about the falling commodity prices and there is no better example than iron-ore that saw a 6.7% drop in a single day. Building approvals fell dramatically also, but this number was balanced by a better than expected private capital expenditure number. This week is a congested one for economic news in Australia. Today’s retail sales number revealed a seasonally adjusted -0.8% result against a forecast 0.3%. Tomorrow sees the RBA announce what should be an unchanged cash rate, but of note is the interest rate markets pricing of 50 points of easing by the end of the year to a cash rate of 3%. Next comes GDP on Wednesday, and then the employment numbers Thursday. Expect volatility to be seen this week given the amount of noise on the horizon.
In New Zealand last week the NBNZ business confidence number revealed a subtle rebound in sentiment. However without doubt the lead for the week came from the news that Fonterra has revised down their payout forecast for the 2012/13 season by 30 cents, potentially wiping .5% off the GDP. This news was opportunistically followed by some downbeat comments by the NZ Finance Minister Bill English. This helped drive down demand for the NZ dollar to the lows of the week. The lead this week will undoubtedly come from Australia. In the absence of material local economic data, the fortunes of New Zealand’s largest trading partner will drive direction.
The economic data in the US continues to take a positive tone. GDP numbers came in within expectation and the housing market is showing continual signs of increased activity. The Bernanke speech at the central bankers symposium offered nothing materially new, but reiterated the FED’s willingness to further stimulate if needed. Speculation now surrounds the September 14th
monetary policy decision. This week’s data will have a bearing on that decision, in particular the employment numbers on Friday. Stagnation in the employment market is the primary concern to the FED, and any disappointment in this number will likely see further quantitative easing measures employed.
This week is a significant one in Europe. The ECB will no doubt be scrambling behind the scenes to try and ensure the measures they announce at their monetary policy announcement are widely supported. Any disappointment in the measures taken could potentially see the EURO aggressively sold. Positive German support to these measures remains the key. There has been some recent nervousness in the European debt markets, and this has seen renewed pressure on Italian and Spanish debt. This nervousness has not been expressed as a slowdown in the demand for EURO, for the time being at least. Tuesdays speech by ECB President Draghi provides the initial focus ahead of Thursday’s announcement.
There was limited economic news in the UK last week. This enabled the Pound Sterling to be dragged higher by the EURO. This week’s Bank of England (BOE) monetary policy meeting will likely see unchanged policy. Again the lead will come from the EURO for the most part. Manufacturing, construction and services data will be closely watched but are likely to be of limited impact on the price action. The largest drag on the UK economy is the depressed nature of its largest trading partners in Europe. Any positive steps in Europe will materially impact in Britain. Recent gains made by the GBP over the Australasian duo have offered some respite for those looking to repatriate funds from the UK to New Zealand and Australia.
Last week saw the Japanese Government downgrade the economy in their monthly economic assessment. The economy has seen a moderate rebuilding recovery, but a weak point has been seen lately. Certainly the retail sales number of -.8% was well below expectations, and industrial production numbers were also disappointing. However the increased risk aversion in the wider market saw the YEN in demand. Today’s capital spending numbers were slightly lower than expected and tomorrows cash earnings data provides the other data focal point of the week in Japan. With the downgrading of Asian economic growth profiles, further gains over the New Zealand and Australian dollars cannot be ruled out in the week coming.
Last week saw positive news emerge for the Canadian economy. House prices saw year on year gains of 4.8% and the monthly GDP number was more positive than expected at +.2%. A Reuters survey revealed that 11 out of 12 of the primary dealers in Canada expect the next move on the cash rate to be a hike from the Bank of Canada in the 3rd
quarter of 2013. Needless to say they expect no change from the BOC at Thursdays meeting. Building, employment and manufacturing numbers on Friday will be closely watched by the market.