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Weekly FX Update - 12th April

Written by Sam Coxhead on April 16th, 2012.      0 comments

4:05 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:

·         Japanese Current Account .85trillion vs .66 expected
·         China Inflation 3.6% vs 3.3% expected
·         China Trade Balance 5.4billion vs -2.2 expected
·         BOJ leaves monetary policy unchanged
·         NZIER Business Confidence 13 from 0.0 previous
·         Australian Unemployment 5.2% as expected
·         China GDP 8.1% vs 8.4% expected
·         US Inflation .2% as expected

Market Overview:

The choppy nature of foreign exchange markets continued last week. Increasing concerns about Spain’s Government and bank debt undermined EURO demand and paved the way for periods of US dollar strength. Complicating matters has been somewhat mixed messages coming from various European Central Bank members. There are certainly conflicting views in Europe about how to best help with the economic recovery and it would not surprise to see further tension in the coming months. News from China has been mixed with higher than expected inflation, better trade balance numbers, but weaker GDP figures. Overall the global picture continues to look mixed and growth sluggish. Generally markets are lacking clear direction as the slow recovery continues.
In New Zealand there was a distinct lack of domestic focus for the market last week. The NZ Institute of Economic Research’s Quarterly Survey of Business Opinion being the only highlight. Survey results point towards very moderate activity and all areas except Christchurch, where the rebuild is finally starting to gather momentum. The Real Estate Institute of NZ monthly data points towards higher house prices across the board, but particularly in Auckland. This is positive for consumer sentiment, and will be interesting to see if there is follow through from this to other sectors, retail in particular. The focus this week are the inflation numbers on Thursday, with an expectation of +.6% for the first quarter.
In Australia last week the hot topic was demonstrably stronger than expected employment data. Whilst it was a broadly strong number, the interest rate market has still almost fully priced a 25pt cut to the cash rate from the Reserve Bank of Australia (RBA) at their early May meeting. This week sees the previous monetary policy meeting minutes released on Tuesday, and these will be closely watched. With increased concerns about Europe, the tapering off of commodity markets and tepid domestic demand in Australia, the Australian dollar should continue to underperform for the most part in the short term.
In the US last week there was a deluge of comments from various FED officials. Debate remains around the prospect of further quantitative easing to help stimulate further recovery. Whilst it remains unlikely in the short term, having it remain on the table as an option is in the FEDs interest as it helps tame any aggressive US dollar demand. This is particularly important as fears increase in Europe and we see the associated demand increase for the US dollars. This week sees the usual flora of economic data due for release in the US. Of particular note will be Tuesdays retail sales numbers and Thursdays manufacturing index from the Philadelphia Federal Reserve.
Concerns about the ability of Spain and its banks to raise funds increased on Friday as the March ECB lending numbers revealed the record amount of funding for Spanish banks. No doubt this type of increased concern will happen periodically over the coming years and is to be expected. The European inflation numbers on Tuesday will be particularly pertinent this week, as debate increases at the ECB about future pricing pressures within the Euro-zone. Along with the increasing concerns comes debate around the future viability of the EURO, and this can often fuel further the anxiety.
The UK economy was off the radar last week as it had just the trade balance data due for release. Even that was uneventful, being marginally worse than expected. On a positive note S&P affirmed the AAA credit rating and maintained a stable outlook. This week’s focus starts on Tuesday with the inflation numbers. The previous monetary meeting minutes from the Bank of England (BOE) are released Wednesday and the retail sales are due Friday. The Pound Sterling saw periods of pressure throughout last week, suffering with the vulnerable EURO. Expect a more resilient performance this week, with gains for the NZD and AUD more difficult from the current levels.
The Bank of Canada (BOC) released its business outlook survey early last week. It was a positive survey with increased optimism coming from the an improved outlook of its largest trading partner the US. This week see the BOC again the focus in what is expected to be an unchanged monetary policy decision on Tuesday. Inflation numbers on Friday will also be closely watched.
The Bank of Japan left monetary policy unchanged at their meeting last week. Subsequent media reports are that they will increase their quantitative easing program later on in the month. The current account numbers we much stronger than expected and that was a positive sign for the economy if it can be continued. This week is light on economic data and will mean much of the lead for the YEN will come from equity markets. If equities are week and European concerns remain elevated, expect the YEN to outperform.