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Major Announcements last week:
- NZ Retail Sales -2.5% vs -.8% expected
- UK CPI 3.3% vs 3.1% expected
- US Retail Sales +1.2% vs .7% expected
- UK Unemployment 7.9% vs 7.7% expected
- UK Retail Sales +.3% vs +.5% expected
- German Business confidence at record high
- Two US manufacturing surveys stronger than expected
- Moody’s down grade Irish credit rating to Baa1
Market Overview:The thin nature of the markets continued as expected in the last week. The US dollar in general remained on the front foot, apart from the odd quick turnaround which highlighted the low levels of liquidity.
The US dollar was supported on a couple of fronts. The early part of the week saw the continued rise of US bond yields and this is generally USD supportive, as investors have to buy USD, to invest in the bonds at the higher yield. Even as yields gave up some of the gains in the Thursday and Fridays sessions, the USD remained in favour. The secondary driver was the continued Govt debt issues that plague Europe and the EURO. Friday saw a sharp drop in the EURO as credit agency Moody’s downgraded the rating of Irish debt a massive five notches from Aa2 to Baa1. The downgrade was no surprise, but it was the extent of the downgrade that caught the market on the hop. US data has continued to be positive with retail sales and manufacturing numbers beating market expectations. The coming week’s focus for the US will be housing and durable goods numbers due for release, which potentially could confirm more broad based economic growth.
The shambles over the peripheral Euro-zone member state Govt debt continues. The magnitude of the Irish downgrade will no doubt place even more pressure on the likes of Portugal and Spain. The two tiered nature of Europe’s economy is highlighted by further positive economic news in Germany and France. German business confidence numbers reaching record high levels on release on Friday . This kind of contradiction highlights the problems the Euro-zone face, when having one central bank dealing with such varied parts of the Euro-zone economy. With little on the coming week’s economic calendar, focus will remain on the Debt issues and any development’s which transpire from that.
Economic data has turned back to the soft side of late in the UK. Inflation remains high and last week saw higher unemployment and lower retail sales numbers recorded. The Bank of England (BoE)seems to be doing its best to talk down the value of the GBP. They are doing this by reiterating they remain poised to introduce a second round of quantitative easing, should the situation in Europe bring about a collapse in the EURO.
The Australian dollar performed well over the last week, in the absence of any meaningful local data. Importantly for the AUD, the Chinese seem content to slow their economy by means of increasing the curbs on bank lending, as opposed to interest rate increases. This current stance has reduced any short term threats to the fortunes of the AUD, from that key export market. This coming week is again light on economic data, but the RBA Monetary Policy Meeting Minutes will be of focus on Tuesday. When we refer to “Monetary Policy Meeting Minutes”, as we often do when discussing the RBA, BoE, and the US Federal reserve, we are referring to the minutes of meetings held, when deciding their previous interest rate decisions. Whilst these minutes are released well after the decisions has been made public, the market takes them and dissects them, in the hope of finding clues to their future thinking, and therefore clues to the future direction of FX markets.
Negative sentiment towards the New Zealand dollar is being backed up by weaker than expected economic data. Retail sales numbers released last week were very weak in October as New Zealand’s economic growth remains patchy at best. Investors exited bought NZD position’s in large numbers last week, placing it under pressure against most currencies. GDP numbers due for release on Thursday will be the focus ahead of the Christmas break.