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Weekly FX Update - 26th March 2012

Written by Sam Coxhead on March 26th, 2012.      0 comments

4:55 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:

·         UK Inflation 3.4% vs 3.3% expected
·         US Building permits .72m vs .69m expected
·         US Existing Home Sales 4.59m vs 4.61m expected
·         NZ GDP +.3% vs +.6% expected
·         HSBC Manufacturing PMI 48.1 vs 49.6 previous
·         UK Retail Sales -.8% vs -.5% expected
·         Canadian Retail Sales -.5% vs +.5% expected
·         Canadian Inflation +.4% vs +.3% expected
·         US New Home Sales 313k vs 326k expected

Market Overview:

Initially last week widespread US dollar strength looked the likely theme of the week. The resurgence of the US dollar lasted the first half of the week, but with an inability to follow through against the EURO and GBP, its dominance was short lived. The confirmation of lower activity in the Chinese manufacturing sector, confirmed the vulnerability of the Australasian currencies. Both the New Zealand and Australian dollars underperformed, against those currencies with lower exposure to the developing Asian economies. This should now continue in the short term. The Japanese YEN had an interesting week, as it halted its recent decline and recovered some lost ground, as the end of financial year in Japan approaches. European debt concerns were somewhat muted, as the market seems happy to focus a little more of growth levels for the time being.
In New Zealand the big news was the disappointing 4th quarter 2011 GDP number. The increase of +.3% was half the expected number. However, this number should be somewhat discounted given its historical nature. The manufacturing sector was the overtly weak component and recent surveys point to a surge in activity, which should allay fears of this theme continuing. The week coming sees a lack of domestic New Zealand economic data, after today’s trade balance number which was slightly better than expected with a surplus of 161million. The sole focus for the remainder of the week is the NBNZ Business Confidence Survey, which will hopefully confirm the recent rebound in sentiment.
In Australia the domestic focus last week was the release of the latest Reserve Bank of Australia’s (RBA) monetary policy meeting minutes. These gave little surprise and confirmed the current 4.25% cash rate is seen as neutral, and risks remain to the down side in the current outlook. The lower than expected result for the Chinese manufacturing survey points towards lower demand for Australia’s exports in the short term, and this will be of influence over the coming months. There is little on the economic calendar in Australia this week, so the lead will again come from the wider market. Any moves by Chinese authorities to stimulate their economy will see increased demand for Australian dollars, and if rumours are correct this is something to be watched for.
Last week the US the economic calendar was relatively light. The main focus was the release of various housing surveys. On balance the results were pretty much as expected and the sector remains under pressure, but should be on the improve with the improving labour market. Further comments by FED officials point towards a lower chance of further quantitative easing from them in the coming months, but it does remain a tool they would use, if a tapering off in the recovery was seen. Long term interest rates set five months highs before retreating into the end of the week. For any US dollar resurgence to be sustained, these interest rates will have to consolidate at the higher levels. This week consumer confidence, durable goods sales and final GDP readings are released.
The EURO remains locked in a tight range with the US dollar, but saw appreciation over the Australasian currencies last week. Nervousness remains about the periphery member state debt markets, but for the most part they consolidated at lower interest rate levels last week. Last week’s manufacturing numbers were materially weaker than expected, but this did not stop some solid demand for EURO throughout the week. This week’s EU summit will hopefully progress talks with regards to measures to contain any further pressure on member debt markets. German business sentiment numbers will be the data highlight of the week, with Fridays inflation numbers not of major concern in current conditions.
The UK economy had an interesting last week. Bank of England (BOE) monetary policy meeting minutes were largely as expected, and point toward ongoing sluggishness expected in the economy. Surprisingly retail sales numbers were demonstrably stronger than expected, and the inflation number was also above expectation. With little on the economic calendar this week, we will have to wait for further evidence that the economy is showing signs of a revival. Interestingly The Financial Times report the UK has been the most targeted nation for mergers and acquisitions over the last 12 months, a sure sign of value in a currency. Of interest this week will be if the GBP can continue its recent revival against the NZD and AUD, or at least consolidate at its improved levels.
The economic data in Canada was not great last week. Both wholesale and retail sales numbers were materially weaker than forecast. Inflation came out just above expectation, but had limited impact. This week sees the monthly GDP numbers released on Friday. Ahead of that expect external factors to provide the lead. Interestingly, ratings agency Moody’s commented Canada would probably maintain its AAA rating, even in the event of a fall in the housing market, and a severe slow down in China.
In Japan the economic news was surprisingly upbeat last week. The recently weaker YEN has contributed to a more upbeat assessment of prospects by Japanese manufacturers. This week sees the release of retail sales, household spending and consumer price numbers (deflation) numbers. Providing interest will also be any evidence of further issuance of Australasian currency denominated bonds in Japan. These instruments termed “carry trades”, enable Japanese savers to access higher interest rates of Australia and NZ. Last week saw a rebound from the YEN after its sharp depreciation in 2012. It will interesting to see if this continues into the end of March, which is financial year end for Japanese corporates.