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Weekly FX Update - 21 May 2012

Written by Sam Coxhead on May 21st, 2012.      0 comments

5:15 PM (NZT) 4:15 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:

·          NZ Retail Sales -2.5% vs +.3% expected
·          German Economic Sentiment 10.8 vs 19.1 expected
·           US Inflation +.2% as expected
·           US Retail Sales +.1% vs +.2% expected
·           GBP Unemployment Claimant Change -13.7k vs +4.9k expected
·           Japanese GDP 1.0% vs +.9% expected
·           US Philadelphia FED Manufacturing Index -5.8 vs 10.3 expected
·           Canadian Inflation +.4% vs +.2% expected
·           Greek elections scheduled for June 17th

Market Overview:

Risk aversion was a strong theme for a majority of last week. Slowing global growth and lower sentiment being driven by further increased Euro-zone uncertainty provided an uneasy mix for markets. For most of the week the US dollar enjoyed strong demand. This eased on Friday as profit taking entered the market and finally supported the major currencies. The Australasian pair remained under pressure almost across the board. The New Zealand dollar showing particular weakness as investors retreat from growth assets. In the wider market the uncertainty around the potential exit of Greece from the single EURO currency group will remain ahead of the June 17th election. Until leadership is found, the large structural issues in their economy remain unsolvable. The potential fallout from an exit would almost certainly lead towards a weaker EURO, and wider economy in the short to medium term.


Last week was a relatively uneventful one for the Australian economy. The Reserve Bank of Australia (RBA) monetary policy meeting minutes reveal a battle against the banks on funding margins was probably the leading factor in the larger than expected cut to the cash rate at their previous meeting. Lower prices and non-mining activity remain under average levels and this will mean the bank will continue to monitor data as it comes to hand. Anecdotal evidence in the media points towards an easing in demand in Asia for Australia’s mineral exports also, so this should be closely monitored. This week sees an empty economic data calendar in Australia, so the lead will come from external factors. Of note is the Chinese manufacturing data due for release on Thursday.

New Zealand

The recent run of weak data continued for the NZ economy last week. The Rugby World Cup induced hangover in retail spending was evidenced as first quarter retail sales numbers were released at -2.5% vs an expectation of a small +.3% rise. Similar to the recent employment data, the back ground of the number was actually more upbeat than the headline suggests. Adding to the poor sentiment were the latest online Fonterra auction results. These are closely watched by international investors, and were over 6% lower on a trade weighted basis from the previous month. This week sees peripheral data released with the RBNZ inflation expectations survey on Tuesday, and then the annual Government budget release on Thursday. Expect neither to dramatically affect price action. The wider market risk aversion last week saw the NZD the worst performing currency of those monitored. Sentiment remains very weak, much to the delight of the exporting sector. After such moves, quick reversals are possible, but look reasonably unlikely to be sustained in the current environment.

United States

In the United States the relatively good data run continues. Retail sales numbers hit expectations, housing numbers indicate a market that has finally bottomed out and industrial production numbers were reasonable. The FOMC monetary meeting minutes revealed little of inspiration as the FED look to wait and see what progresses over the coming months. A demonstrably worse than expected manufacturing number on a Philadelphia Fed survey was of note, and will keep the interest up for upcoming manufacturing  sector releases. This week’s focus comes from housing numbers on Tuesday and Wednesday, and durable goods sales numbers on Thursday. The US dollar was stronger for a majority of the week, before giving up gains. The market realizes that the FED will likely step in with further quantitative easing if the US data takes a materially softer tone. This could slow the momentum of the US dollar in the coming weeks.


New elections are scheduled in Greece on June 17th. The election will likely end up being a proxy for continued Euro-zone membership. The wait for this election is going to be painful. The increasingly isolated German officials are likely to be the drivers of any resolution to the current woes. No doubt scrambling behind the scenes will be ongoing. There is little prospect of a material improvement in the European data until sentiment can improve with certainty. At least the initial first quarter GDP numbers came in at flat, with Germany again providing the bulk of the strength. Inflation remains reasonably contained at 2.6%. There are various services and manufacturing numbers due this week, but direction is likely to come from headlines from various officials with regards to the handling of the Greek situation. The credit agencies have been active in their downgrading of various European banking sectors, which is unsurprising to say the least.

United Kingdom

The Bank of England (BOE) inflation report dominated the focus in the UK last week. It stated the UK growth prospects remain unusually uncertain and attributes the blame to the ongoing uncertainty in Europe. The path to economic recovery is likely to remain slow and uncertain, and an escalation of the credit crisis in Europe would likely sees further quantitative easing used to stimulate growth. The UK unemployment claims data was a bright spot which reports a unexpected fall in the level of claims. The reemergence of the possibility of QE undermined the recent GBP strength, and the GBP gave up some its recent gains, especially against the EURO. The focus this week comes from inflation numbers later on Tuesday, BOE monetary policy meeting minutes and retail sales data Wednesday, and the final Q1 GDP number on Thursday.


Last week saw the preliminary GDP numbers for Japan beat the market expectations. The 1.0% result was against an expectation of .9% and was driven by strong activity in the export sector. This week’s focus is solely on the Bank of Japan’s (BOJ) monetary policy decision on Wednesday. Further easing of monetary policy cannot be ruled out given the rampant and relentless march higher of the YEN.


The Canadian inflation data was materially higher than expected on Friday last week. The lowering oil price has obviously been a balancing factor, otherwise the CAD would have seen a dramatic pickup in demand. This week sees the retail sales number  on Wednesday as the focus. Given the CAD strength of late, any further gains on most pairings are likely to be harder fought than in recent weeks.
Topics: AUD, cad, Eur, GBP, JPY, NZD, USD, YEN