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Weekly FX Update - 12th March 2012

Written by Sam Coxhead on March 12th, 2012.      0 comments

3:45 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:

·         Greece completes debt swap with 95% participation (CAC included) in controlled default.
·         UK Services PMI 53.8 vs 55.0 expected
·         US Non-manufacturing PMI 57.3 vs 56.1 expected
·         RBA, RBNZ, BOE, ECB, BOC all leave cash rates unchanged
·         Canadian Manufacturing PMI 66.5 vs 62.1 expected
·         Australian GDP +.4% vs +.8% expected
·         Brazil and Korea cut their cash rates
·         Chinese Inflation 3.2% vs 3.5% expected
·         Chinese Growth Expectations reduced to 7.5%
·         Canadian Unemployment rate 7.4% vs 7.6% expected
·         US Unemployment rate 8.3% as expected

Market Overview:

Last week in the financial markets proved to be as interesting as expected. Price action remains volatile across most markets, but within contained ranges. The Greek debt swap process reached 95% acceptance, once the collective action clause was activated. The Greek debt is now considered to be in managed default. This was expected and the announcement has had a limited effect on the market. While volatility remains surrounding other peripheral Euro-zone member debt, issues have been contained for the time being. Economic data numbers from the US continue to improve on a relative basis. Whilst there is still talk of further quantitative easing (QE), it seems highly unlikely this would occur if the improved outlook continues. The emerging markets are showing continued signs of slowing growth. South Korea and Brazil both cut interest rates last week, in an effort to stimulate their economies. Chinese officials announced that inflation expectations were being reduced, along with growth for 2012. Lower growth prospects in Asia will affect the Australasian export sector materially, and should be evidenced in lower demand for both the Australian and New Zealand dollars in the coming months.
In New Zealand last week the Reserve Bank of New Zealand (RBNZ) monetary policy announcement was the sole focus. Interestingly the statement, and accompanying comments, point towards the record low cash rate of 2.50% remaining in place for quite some time yet. Do not expect changes to the cash rate in 2012. Over the weekend, massive dairy company Fonterra lowered their earnings forecast on the back of the high level of the NZ dollar, and lower international commodity prices. With slowing growth in many of New Zealand largest export markets, the NZD will be vulnerable to drops in demand in the coming months. This week coming has no significant economic data due for release in New Zealand.
The outlook in Australia looks mixed. The Reserve Bank of Australia (RBA) left the cash rate unchanged as expected at last week’s meeting. They remain poised to react to economic data as it unfolds. GDP numbers that followed the RBA announcement were well below trend levels and have seen the market increase the chances of further cash rate cuts. Employment numbers were more solid, and close to expectation. The slowing outlook for China adds further uncertainly to the outlook. Tomorrows home loan numbers are the sole economic data focus of the week, and should not materially impact on Australian dollar demand.
Looking forward in Europe the focus is likely to change a little going forward. Whilst the sovereign debt issues will remain closely watched, economic data should rightly come back into focus. The European Central Bank (ECB) look increasingly unlikely to cut interest rates lower than the current 1%. Inflationary pressure remains contained for the time being, but this will be watched closely. The weak EURO is obviously fortuitous for the export sector, but also means “imported” inflation, can become a problem. German economic sentiment numbers late Monday, and Euro-zone inflation numbers on Tuesday, will be the focus of the week.
The slow recuperation of the US economy is continuing. Both the non-manufacturing and employment numbers last week confirm progress is being made, albeit at a slow pace. The decreasing chances of further QE  should see the US dollar in demand over time. This week coming is another busy one in the US data wise. The Federal Reserve (FED) should announce no change to monetary policy at their meeting on Tuesday, but the statement will be widely read. Other data includes retail sales numbers on Tuesday, and inflation and consumer sentiment numbers on Friday.
Last week was a relatively uneventful one for the UK economy. Most of the focus was on neighbouring Europe. The Bank of England (BOE) left monetary policy unchanged as expected, and the other data was actually a little weaker than expected. Interestingly the Pound Sterling did see periods of demand, albeit not able to hold its gains against the Australasian currencies. Wednesdays employment numbers will be the focus for the week coming.
In Japan last week there was more mixed news. Average cash earnings numbers were better than expected, but the final GDP number for the 4th quarter 2011 was confirmed at -.2%. The YEN’s recent wild ride continued as it continued to see pressure from the US dollar, but took back some of the recently lost ground to the Australasian currencies. Today we have seen the important machinery orders number beat expectation. We have the Bank of Japan (BOJ) with their monetary policy announcement tomorrow and their monthly report on Wednesday. No change is expected from the BOJ at this meeting.
Last week was a busy one for Canadian economic data releases. Manufacturing numbers were demonstrably stronger than expected. The latest housing figures were close to expectation and the Bank of Canada (BOC) left monetary policy unchanged as expected. The BOC did offer a most positive statement, which is in line with the continuing positive outlook in the US. The BOC also commented that global risks had fallen, and is in reference to Greece’s controlled default. This week is light on Canadian economic data, so expect the general lead to come from the US data.