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Weekly FX Update - 19th September 2011

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

5:25 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:

  • UK Inflation 4.5% as expected
  • US Retail Sales .1% vs .2% expected
  • US Producer Prices 0.0% vs -.1% expected
  • RBNZ leaves the cash rate unchanged as expected, lower cash rate projections going forward
  • UK Retail Sales +.2% as expected
  • European Inflation 2.5% YoY as expected
  • US Inflation .2% as expected
  • US Philadelphia Fed Manufacturing Index -17.5 vs -14.7 expected
  • US UoM Consumer Sentiment 57.8 vs 56.4 expected
  • ECB,BOE,BOJ,SNB and FED coordinate to provide USD funding to European banks

Market Overview:

The last weeks trade was one of relatively small ranges for the most part. Consolidation around new levels comes as the market is generally lacking clear direction from current levels. The main focus has remained on Europe and its debt issues. There is a feeling that the market will see uncertainty resume at some point soon, but with many potential triggers at play, timing of market moves are almost impossible to predict. In the absence of a trigger in the meantime, it could be expected we may see a gradual climb in growth assets, as “Armageddon” speculative positions are exited by impatient investors.  The Euro group finance ministers meeting during the weekend failed to deliver any clear direction and this has seen the US dollar open strongly for the week. The lack of leadership is becoming a central issue for Europe and its navigation through its debt contagion issues. Last week’s central bank co-ordination from the Bank of Japan(BOJ), Bank of England (BOE), Swiss National Bank (SNB), European Central Bank (ECB) and the US Federal reserve (FED), to  secure US dollar funding for European banks was positive, and lent support to banking stocks and credit markets.  This week the focus will turn back to the US and the deliberations of the FED following its two day monetary policy committee meeting on Thursday. Further quantitative easing can all but be ruled out at this juncture, but there will be some policy initiatives announced. The Australasian currencies remain vulnerable to selling pressure, as the global economic data remains patchy at best.
 
In New Zealand last week’s Reserve Bank of New Zealand’s monetary policy statement showed that global considerations have resulted in expected cash rate increases being pared back somewhat. This led to a softer NZD, in what was a week lacking any other economic data. The lower projected cash in NZ for the coming few years will be countered by the probable increase in wholesale funding costs for the banks, and ultimately borrowers. This week will see the focus on the current account and growth figures on Wednesday and Thursday respectively. The Growth figures will be of primary focus with GDP expected to be +.5% for the second quarter.
 
In Australia there was a distinct lack of economic data last week. This left the AUD to be led by sentiment in the wider market. Most of the week was spent in a relatively small range, but given the current climate, a definite downside bias remains in place. This coming week the primary focus will be on the Reserve Bank of Australia (RBA) monetary policy meeting minutes on Tuesday. Once these minutes are out of the way, focus will return to Europe and the US FED meeting for direction.
 
The European debt situation remains on a knife edge. Credit downgrades of French banks did not come as a surprise to the market. The central bank US dollar funding facility that European banks can access gave the market a much needed boost in confidence. Intense pressure remains on Greece to enforce the required spending cuts to ensure future bailout funds and avoid default. On a positive note, the political will to see Greece helped to a better financial position is encouraging. This week’s focus will remain on the credit markets, and any progress on the Greek situation.
 
In the UK the rhetoric coming from the BOE continues to point towards more stimulus at some stage. Inflation and retail sales figures last week came in exactly as expected and saw limited impact. The Pound Sterling was relatively stable last week, trading relatively small ranges against most currencies. The monetary policy meeting minutes when released on Wednesday will be closely watched for any information on this issue.
 
In the US the economic data is largely uninspiring. Inflation was as expected and is at levels that will prevent further quantitative easing from the FED this week. Consumer sentiment numbers were better than expected and offset worse than expected manufacturing numbers. The US dollar is benefitting from the weak EURO and increased demand for US Government debt as the current uncertainty pushes investors towards relative safe haven markets.
 
In Canada last week there was little in the way of economic data, so price action was driven from external factors. This week sees the release of monthly inflation and retail sales numbers. Inflation will not be of primary concern, so expect the retail sales numbers to be the focus on Thursday. The CAD’s relative correlation to the US dollar should see it continue to put pressure on both the Australian and New Zealand dollars. At current levels, albeit them back from the highs, represent good value buying of Canadian dollars with NZD and AUD.
 
In South Africa this week there is a raft of economic data. Of most consequence will be the quarterly employment statistics and inflation numbers. With slowing growth and persistent inflationary pressure the South African Reserve Bank remains in an unenviable position. Along with other emerging market currencies, the RAND has been under pressure. Should inflation surprise to the upside, expect the prospect of cash rate hikes to increase and investor interest in the RAND to grow correspondingly.
 

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