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Weekly FX Update - 10th April 2012

Written by Sam Coxhead on April 10th, 2012.      0 comments

6:05 PM (NZT)

Currency Commentaries:

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

Major Announcements last week:

·         UK Manufacturing PMI 52.1 vs 50.6 expected
·         European Unemployment 10.8% vs 10.7% expected
·         US Manufacturing PMI53.4 vs 53.3 expected
·         RBA leave monetary policy unchanged
·         UK Construction PMI 56.7 vs 53.6 expected
·         UK Services PMI 55.3 vs 53.5 expected
·         ECB leaves monetary policy unchanged
·         BOE leaves monetary policy unchanged
·         Canadian Unemployment rate 7.2% vs 7.5% expected
·         US Unemployment rate 8.2% vs 8.3% expected(but jobs market contracted)
·         Chinese Inflation 3.6% vs 3.3% expected
·         BOJ leaves monetary policy unchanged

Market Overview:

Overall the price action in the foreign exchange market was again directionless last week. The staggering nature of the wider economic recovery sees any positive economic data come in fits and starts. European debt concerns have seen further downward pressure on banking stocks globally, and this spread through to the wider equity markets. Lower equity markets saw the New Zealand and Australian dollars under periods of pressure throughout the week, but the weak US employment report on Friday saw the US dollar give back ground. The big question is whether or not the lower than expected jobs growth in the US is sign of things to come, or just part of the staggering progression toward a more normal labour market. One thing is certain, the world needs a positive outlook in the United States, given the apparent stronger headwinds in other regions.
The employment numbers were the focus of last week in the US. While the unemployment rate dropped from 8.3% to 8.2%, this fall was driven through labour market contraction, which is not a positive sign. The interest rate market pushed yields much lower following the announcement, as the probability of further near term quantitative easing from the FED apparently increased. The other economic data was at, or close to expectations, and the previous FED meeting minutes pointed towards a lower chance of stimulus from the FED. The tiring ebb and flow nature of speculation around further FED action will continue in the coming weeks, and is at the heart of the range trading nature of markets in 2012. This week has the usual array of economic data in the US, but Fridays inflation and consumer sentiment numbers will be the focus.
In Europe we saw again rising concerns over the sustainability of debt loads of various member states. Spain saw its cost of funding increase as the size of its spending cuts, and their impact on the economic growth profile continue to be a cause of concern. The unemployment rate rose to a record level of 10.8% across Europe, with peripheral states coping with rates double that average. The European Central Bank (ECB) held monetary policy unchanged as expected. The accompanying comments were of note for apparent dismissal of inflationary concerns and focus on the struggling growth profile. There is little of economic data focus in Europe this week, but the ECB monthly bulletin will be closely watched.
There was little in the way of economic data in new Zealand last week. The New Zealand Budget was the highlight of the domestic week. It shows a lower than expected tax take and this has seen the Government point towards little or no increases in spending in the upcoming year. This week coming is also light on data, with the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion due for release on Wednesday. Also of note maybe the monthly house price index due at some stage throughout the week. Certainly activity in Auckland has been more buoyant in 2012, and is a sure sign of a return of confidence to households.
In Australia last week the Reserve Bank of Australia (RBA) monetary policy meeting minutes point towards a further easing of the cash rate to 4% at Mays meeting. The well worded minute intimated that the board just wanted to see the inflation numbers on the 28th, before actually pulling the trigger on the cut. The employment numbers on Friday will be the focus of the week, with the unemployment rate expected to be at 5.3%. Monday saw the release of the Chinese inflation numbers. These were higher than expected at 3.6% and points towards lower chances of further stimulation in China from authorities in the short term. Today saw the release of China’s trade balance numbers show a positive bounce back from the very low numbers reported in March. So on the balance this are fairly neutral for the Australian economy.
The United Kingdom last week saw some demonstrably stronger than expected manufacturing, construction and housing numbers. The positive numbers underpinned demand for the GBP that lasted for most of the week. As expected the Bank of England (BOE) left monetary policy unchanged. This week sees mainly lower level economic data on the calendar, so expect any moves to be muted for the most part.
The news in Canada was relatively upbeat last  week. The long wait until the data flow on Friday proved worth it. Much stronger than expected building and employment numbers were just slightly offset by the mild manufacturing results. The Bank of Canada (BOC) also released a positive assessment for the economy in their Business Outlook Survey yesterday. Of note was the emphasis on the positive sentiment coming though from business operating in the resurgent US economy.. The trade balance on Friday rounds out the weeks domestic focus, with expectations of a 2.2billion CAD surplus.
In Japan the average wages data released last week showed its first increase in pay for nine months. This positive result was offset by a weaker “Tankan” manufacturing sector survey. Yesterdays current account surplus was larger than expected and is a positive for the exporting sector. The Bank of Japan (BOJ) today left monetary policy unchanged. There had been some speculation that further stimulation would be provided, so this result may see some position reversing provide some demand for the YEN in the short term. Friday’s release on the minutes from the monetary policy meeting add further light to the pressures at play for the BOJ and will be closely followed.