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Weekly FX Update - 14th November 2011

Written by Sam Coxhead on November 14th, 2011.      0 comments

5:15 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

Major Announcements last week:

  • UK Manufacturing Production .2% vs .2% expected
  • Canadian Housing Starts 208k vs 198k Expected
  • Australian Home Loans 2.2% vs 1.7% expected
  • Chinese Inflation 5.5% vs 5.4% expected
  • Australian Unemployment rate 5.2% vs 5.3% expected
  • Bank of England leaves monetary policy unchanged
  • US UOM Consumer Sentiment 64.2 vs 61.3 expected
  • Greece passes austerity budget and PM Papandreou replaced
  • Italy passes austerity budget and Berlusconi replaced
  • NZ Retail Sales 2.2% vs .6% expected
  • Japanese Q3 GDP +1.5% as expected

Market Overview:

The heightened level of uncertainty continued in the wider financial markets last week as was expected. Early in the week there was relatively stable price action, before the Italian bond market came under intense pressure. The cost of funding for Italy pushed out to completely unsustainable levels. This caused PM Berlusconi to push for almost immediate passing of an austerity budget for 2012. The price he paid for this was his job, once the legislation was passed. Greek PM Papandreou was another victim on the week, and now both governments are being led by unelected technocrats. Expect focus to remain on the European debt markets in the short term, although things should be more settled this week, following the required actions being taken by Greece and Italy. Meanwhile the economic data in the US continued its recent improvement for the most part. Interestingly the news in Australasia was also a little more encouraging.
Last week there was a complete absence of economic data releases of note in the NZ economy. The lead for the NZ dollar was purely driven by external influences. This morning saw the release of the 3rd quarter NZ retail sales numbers. The 2.2% increase was much better than the .7% that was expected. The increased activity was put down to the activity surrounding the rugby world cup. Now focus moves to Thursdays release of the quarterly producer price data. The European situation will continue to drive sentiment in the short term. Given there are still significant concerns about the state of the global economy, the NZ dollar, along with the Australian dollar, has held up reasonably well.
In Australia the main news last week was the strength of the employment numbers. The unemployment rate impressively fell back to 5.2% and is the envy of other western economies. Inflation expectations remain subdued in Australia, so further cuts to the cash rate can be expected in the near term. Tomorrow sees the release of the meeting minutes from the last Reserve Bank of Australia (RBA)monetary policy meeting. Thursday sees an on the record speech from RBA Governor Stevens, with any further remarks about monetary policy certain to garner a reaction from the market.
In Europe the market will be hoping for a slightly less eventful time this week coming. With newly appointed interim leaders in Italy and Greece to oversee the implementation of what will be very unpopular austerity measures, periods of volatility are to be expected. This week sees some significant economic data due for release. The data has been of secondary importance of late, but at some stage the focus will return to the real economy. Tuesday and Wednesday see the release of the European GDP and inflation numbers respectively. Growth is at low levels currently with just .2% expected for the quarter, and with the austerity drives to kick in, it will no doubt prove to be elusive in the coming quarters also, if not years. The EURO has actually performed reasonably well considering the situation. This can be put down to a couple of factors. Firstly, European banks are currently selling offshore assets and repatriating funds to bolster their balance sheets ahead of the debt write downs. Secondly, while the sovereign wealth funds have been exiting southern European debt, they have been buying northern European bonds. Until we see an exit from the fixed income markets in Europe by these funds, the EURO will struggle to be pushed too much lower. Credit ratings will remain important, and the French rating in particular is being closely monitored.
The US economic data continues to steady itself. Friday’s better than expected consumer sentiment number helped inject much needed life to equity markets. This week is a busy one on the economic data calendar. Tuesday sees the retail sales numbers due for release. Wednesday comes the inflation numbers and Thursday the important manufacturing numbers. If the numbers continue to point to a further pickup in demand, the possibility of further US weakening quantitative easing (QE) lessens.
In the UK economic activity remains underwhelming to say the least. However the Pound Sterling performed reasonably well last week, thanks to a pick up in the investor interest for British debt. Against both the New Zealand and Australian dollars, the GBP has put on some reasonable ground over the last week or so. Consolidation around current levels is crucial for the building of pressure for another move higher for the GBP. The week coming sees the release of inflation numbers on Tuesday. Inflationary pressure is due to ease back significantly over the coming months, easing the way for the increased QE measures. Thursdays retail sales number is expected to come in at -.3%, and is a reasonable indicator of where things are at currently in the UK.
In Canada there was little in the way of top tier economic data last week. The Canadian dollar did however make some reasonable gains. The elevated level of the oil price has buoyed demand for the CAD, and this may well continue this week. Aside from the oil price, the focus will be Fridays inflation data, with the number expected to be .2% for the month.
In Japan last week PM Noda asked for support of tax increases to help fund the recovery from March’s devastating earthquake. A number of state asset sales are also being mooted to help raise funds. The debacle in Europe has not helped the Bank of Japan (BOJ) and their efforts to weaken the YEN. The BOJ have not officially been back in the market since their initial intervention a couple of weeks ago. The YEN saw grinding appreciation last week, and given events in Italy and Greece, should settle down a bit this week. There remains a chance once again of further intervention. Today’s 3rd quarter GDP number was as expected at 1.5%, as the recovery rebuild stimulation starts to become evident in the statistics.