5:05 PM (NZT)
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NZD/AUD (AUD/NZD) AUD/GBP (GBPAUD)
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Major Announcements last week:
· US Retail Sales +.4% vs +.1% expected
· NZ Inflation +.3% vs +.5% expected
· UK Inflation 2.4% vs 2.8% expected (YoY)
· German Economic Sentiment -19.6 vs -17.3 expected
· US Inflation +.2% as expected (MoM)
· Bank of Canada leave monetary policy unchanged
· UK Retail Sales +.1% vs +.6% expected
· US Philadelphia FED Manufacturing Index -12.9 vs -7.9 expected
· Canadian Inflation -.4% vs -.1% expected
The interesting environment continues to play out in the wider financial markets. Europe continues to stumble along. Growth is of an ongoing concern, and teamed up with the well established financial issues will maintain pressure on the EURO for some time to come. The Australasian currencies have direction being driven by two opposing forces. The slowing global growth outlook is most definitely a negative for the commodity currencies. The slowing global growth picture increases the chances of a slowdown in the US recovery, and increases the odd of further stimulation from the Federal Reserve (FED). Any increase in the stimulatory efforts from the FED are New Zealand and Australian dollar positive. These opposing forces are likely to continue to feature throughout 2012 and point towards a continuation of directionless trade within establish trading bands.
The Reserve Bank of Australia (RBA) monetary policy meeting minutes released last week were a little less down beat than expected. Further easing in the cash rate from the current 3.50% will be reliant on further slowing in economic conditions. Increased speculation around further central bank buying of Australian dollars underpinned demand for the AUD throughout the week. On Friday a lowering of Chinese 3rd
quarter growth forecasts to 7.4% , and a lower EURO helped stem further appreciation of the AUD. This week’s focus sits primarily with the 2nd
quarter inflation numbers due on Wednesday. Any result dramatically away from the +.6% market expectation will likely see a reaction from the interest rate market flow through into a change in AUD demand.
quarter NZ inflation number were materially lower than expected. This provides the Reserve Bank of NZ (RBNZ) room to keep the cash rate lower if need to support economic growth. The latest Fonterra auction results were mixed. Ironically the outlook should improve as the continued drought in the US puts further pressure on the global grain markets, making the NZ grass fed dairy products more competitive. The focus this week is provided by the latest RBNZ monetary policy announcement. Expect no change from the RBNZ, and a short and concise accompanying statement. It seems like that the RBNZ will maintain its emergency low cash rate of 2.50% well into 2013.
Economic indicators continued to show an again slowing economy in the US last week. Lower than expected construction, retail sales and manufacturing numbers were seen along with an .2% inflation number for the month of June. FED chairman Ben Bernanke made his semi-annual testimony on Capitol Hill on the economy and monetary policy. The testimony was unremarkable in that he has not altered from his recent rhetoric. Further monetary policy stimulation will be used if it is deemed appropriate. These comments seem to be keeping the US dollar from gaining momentum too fast, albeit seeing grinding appreciation against the beleaguered EURO. Undoubtedly this week’s focus will be Friday’s release of the 2nd
quarter GDP numbers. The market expects 1.6% growth, although that maybe revised down following the weak series of data releases lately.
Spain has again come under serious scrutiny from the financial markets. Funding costs have again soared to record levels amid news that the EU have agreed the bailout package for the Spanish banks. An illustration of the concern is the fact that the Spanish equity market was 5.8% lower on Friday’s session alone. The wider situation remains horrible and this slow moving train wreck shows no signs of slowing down. This crisis is one of economic, financial and increasingly political issues. None of these are easily or quickly remedied. Last week German economic sentiment numbers dipped further and this week Europe wide manufacturing numbers are the focus.
The UK inflation numbers were lower than expected when released last week. This eases the way for additional monetary stimulus if required and certainly eases pressure on the Bank of England (BOE). Also of surprise were the stronger than expected employment numbers, however these were countered by the continuation of weak retail sales figures. The BOE monetary policy meeting minutes were of interest because they revealed a voting split on the additional Quantitative Easing announced at the meeting. Rather than pushing for 75billion as opposed to the 50billion delivered, two members voted for no additional easing at all. The sole focus in the UK this week will be the preliminary GDP numbers due for release on Wednesday. A number at the market expectation of -.2% would confirm a return to technical recession of contracting activity in two consecutive quarters.
The Bank of Japan (BOJ) monetary policy meeting minutes confirm that additional monetary stimulus remains a live option for the BOJ. The strong demand and level of the YEN remains a primary concern of policy makers and the rhetoric from the Ministry of Finance and Bank of Japan confirm that further market intervention is likely at some stage. This week’s focus is the trade balance, retail sales and inflation numbers. All three will be closely watched by the market.
The Bank of Canada did not surprise the market at their monetary policy announcement. The cash rate remains unchanged, as it will likely continue to be so until 2014. Monthly manufacturing numbers were softer than expected and are a good indicator of the staggering nature of the recovery. The volatile monthly inflation number show a sharper monthly fall than expected. Retail sales numbers will be the focus of the week coming and will be released on Tuesday.