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The Final Weekly FX Update for 2011 - 19 December 2011

Written by Sam Coxhead on December 19th, 2011.      0 comments

7:35 PM (NZT)

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 home loans +.7% vs +.1% expected
·          UK inflation 4.8% as expected
·          European economic sentiment +53.8 vs -56.1 expected
·          US retail sales +.2% vs +.6% expected
·          US Federal Reserve leaves monetary policy unchanged
·          UK unemployment rate 8.3% vs 8.4% expected
·          HSBC Chinese manufacturing index 49.0 vs 47.7 previously
·          UK retail sales -.4% vs -.3% expected (previous month revised from +.6% to 1.0%)
·          European inflation 3.0% as expected
·          US weekly jobless claims 366k, best number in 3 years
·          US Philadelphia Fed manufacturing index 10.3 vs 5.1 expected
·          US core inflation  .2% vs .1% expected
·          French credit rating placed on negative watch
·          Chinese residential real estate prices see second month of declines

Market Overview :

As expected the financial markets focus remained on Europe for the most part last week. With low levels of liquidity as holidays and year end approaches, the price action in all markets was erratic at times.  Economic data remains patchy at best. In the US lower than expected retail sales numbers we countered by better jobless claims and manufacturing data releases. In Europe, various Italian and Spanish debt auctions saw better than expected demand, but the threat of credit downgrades weighed on investor sentiment. For the most part the US dollar remained in demand, before giving back a little of its gains as the weekend approached.
 
In New Zealand there was a lack of domestic focus last week, in the absence of local economic news. This week we have the much anticipated 3rd quarter GDP numbers to look forward to on Thursday. Expectations are for around a .8% increase in activity on the quarter, with a boost expected to have come through the Rugby World Cup. Expect a little positioning ahead of this number. Evidence of this came in the offshore session on Friday, when the NZD finally saw some decent demand. This looked to be some squaring up of speculative “sold NZD” positions, especially against the Australian dollar.
 
In Australia last week there was little in the way of major economic news. Mondays home loans data was better than expected, but this was tempered by a downward revision of the previous months number. With a gloomier global growth outlook permeating on a weekly basis, the bias towards a lower Australian dollar is now firmly in place. Further evidence of a slowdown in China came over the weekend with news national property prices were lower for the second straight month. Speculation is now increasing that further loosening of monetary conditions from Chinese authorities is imminent. A slowing Chinese and wider Asian economy will materially affect the Australian economic outlook for 2012. Expect further easing to the cash rate in 2012, and the contraction of interest rate differentials, should lead to easing in demand for Australian dollars across the board in the coming quarters. This week’s focus will be Tuesday’s Reserve Bank of Australia’s (RBA) meeting minutes from the RBA monetary policy meeting two weeks ago.
 
In the US the economic picture remains one of sluggish growth. The much lower weekly jobless claims numbers last week are encouraging. This was the best number in three years for this series and points to a further reduction in the unemployment rate if momentum can be maintained. The surprisingly strong manufacturing index is also another positive sign for the economy. By far the largest risk is  further implosion in Europe in the first half of 2012, in terms of both economic and financial risks. If stability can be found in Europe, the gradual emergence back to health for the US economy should continue. This week’s focus is on the various housing numbers due for release, along with final 3rd quarter GDP readings and the “durable goods“ number on Friday.
 
European tensions remain the focus globally. Close attention to debt markets continues, especially as the speculation of moves by credit agencies continues. Fitch has placed France on negative watch, and rumours of a move by S&P this week are rife. Expect focus to continue on Greek and Italian debt markets in the first half of 2012, as some massive borrowings mature for both countries. The ability to rollover debt remains the key. Fast paced structural changes are required to placate lenders. Until hard evidence is in place that changes are being made, the pressure will remain. Tuesday will be the primary focus this week, with ECB President Draghi speaking ahead of the important German Business Climate numbers.
 
Economic news in the UK remained downbeat for the most part last week. One bright spot was a small pick up in the monthly employment numbers. This improvement will need to continue for a number of months for this to materially change the outlook in the UK. Expect more quantitative easing early in 2012 from the Bank of England (BOE), now that the inflationary pressure is finally falling. The focus for the coming week will be on the BOE monetary policy meeting minutes due for release on Wednesday. If sentiment again turns nasty in Europe, expect the Pound Sterling to make further ground against both the New Zealand and Australian dollars.
 
There was very little in the way of top tier economic data in Canada last week. Most of the lead came from the US dollar for the CAD. This week keeps those with Canadian dollar interests focused ahead of Christmas. Tuesday sees the release of the inflation numbers, Wednesday retail sales numbers, and on Friday monthly GDP numbers are released. If the global uncertainty picks up in 2012, the CAD will push back towards more historically average levels against both the NZD and AUD.
 
The Japanese economy had no top tier economic news last week. Interestingly in a survey of Japans largest manufacturers there was evidence of again growing pessimism as the high level of the YEN strangles the economy.  This week sees the Bank of Japan (BOJ) announce monetary policy on Wednesday. Whilst no change is expected to the conventional monetary policy, alternative methods may be on offer. Various offshore investment initiatives have struggled to have the desired effect on the YEN, but Japanese authorities remain poised to make significant contributions to the IMF to bolster European bailout resources. This has the double effect of placing downward pressure directly on the YEN, and hopefully providing stability for Europe, which overtime will aid the EURO’s recovery, and again reduce demand for YEN. Expect further measures such as these from authorities and the BOJ throughout 2012.

 

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