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Global growth under pressure - Weekly FX Update - 27th August

Written by Sam Coxhead on August 27th, 2012.      0 comments

6.29pm (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:

·         RBNZ NZ Inflation Expectations Survey 2.3%
·         Canadian Retail Sales -.4% vs +.3% expected
·         Chinese HSBC Manufacturing Survey 47.8 vs 49.3 previous
·         German Manufacturing PMI 45.1 vs 43.5 expected
·         European Manufacturing PMI 46.2 vs 43.7 expected
·         UK revised GDP +.5% as expected
·         US Durable Goods Orders -.4% vs +.5% expected

Market Overview:

Last week amongst intensifying market noise, familiar themes continued. Further evidence came of a fragile global economy struggling for growth. There were soft indicators from Europe, the UK , the US and China. Increased speculation about further central bank accommodation countered the weak economic data, and these two opposing forces will continue their battle in the near term. The European Central Bank  (ECB) appears to be making progress on their strategy to protect vulnerable European debt. This has seen the EURO in hot demand at times, as investors scramble to cover sold positions. Even with the prospect of further policy accommodation, the equity markets are lethargic. This looks to be an indicator that their three month run of form may be close to an end. Weaker Chinese numbers and slowing commodity demand have exposed an air of vulnerability for the Australasian duo. Given the relative strength of the Australian and New Zealand dollars over the last few months, a period of lower demand would not surprise.
Of note this week coming is the annual central bankers symposium in Jackson Hole. In the past the US Federal Reserve Chairman Ben Bernanke taken this event as an opportunity to vocalise thought on monetary policy. Given the uneven reaction to last week’s FED monetary policy meeting minutes, it would not surprise to see Bernanke once again articulate this thoughts.


Last week in Australia the release of the minutes from the previous Reserve Bank of Australia (RBA) monetary policy meeting provided the focus. The familiar themes continued with Europe providing ongoing concerns, and their view that China has seen growth reduce to more sustainable levels. Interestingly they seem relatively relaxed about the level of the Australian dollar. It has certainly kept any inflationary pressure under control for the most part. The news that around 50 billion of mining investment has been put on hold is of increasing concern. Given that mining investment has been a dominant driver in the economy, this will be closely monitored going forward. A tenth consecutive month of contracting manufacturing activity in the HSBC Chinese manufacturing survey has increased concerns that Chinese growth is more vulnerable than previously thought. The state of manufacturing numbers will be released this Friday and these will be closely watched to see if the lower activity is mirrored.  The Australian data focus comes on Thursday, with the release of the monthly building approval and quarterly private capital expenditure numbers. Given the current headwinds, the Australian dollar looks a little vulnerable, and any upside surprises should be limited in the short term at least.

New Zealand

Last week there was limited economic news in New Zealand. The highlight was provided by the Reserve Bank of New Zealand (RBNZ inflation expectations survey and this saw a slightly lower result at 2.3% (previously 2.4%). This week is similarly quiet with just the NBNZ business confidence results on Thursday. The weak HSBC Chinese manufacturing survey result was of note last week. China will again be the focus this Friday when the official numbers are released. The RBNZ are not expected to change the emergency low cash rate of 2.50% in the coming 12 months according to the latest pricing in the interest rate markets.

United States

Last week the Federal Reserve monetary policy meeting minutes pointed towards further accommodative monetary policy from the FED. The market’s reaction was lower demand for the US dollar initially, before sanity prevailed and the US dollar took back the lost ground. The economic data was mixed, with strength coming in from housing and manufacturing numbers, while Fridays Durable Goods sale figures painted a gloomier than expected outlook. This week will be another interesting one for the US economy. Preliminary GDP and the latest housing numbers are due on Wednesday. These come ahead of the annual central bankers symposium over the weekend. In the past, FED Chairman Bernanke has used this symposium as an opportunity to communicate further on monetary policy.


Sentiment has improved on the European debt markets as the ECB continued to work on their stability solution. Capping funding costs for bailout nations is one option gathering momentum. The ensuing demand for the EURO was driven by investors scrambling to exit “sold” Euro positions, and this reversal may have some way to go yet. Ironically the economic data remains horrible for the most part, and there is certainly a long road ahead to see a decent recovery in economic growth. One number that bucked the trend was the better than expected manufacturing numbers released Thursday. Whilst still contracting, the contraction was less than expected, as can be directly attributed to a lower level of the EURO making goods more competitive. This week sees the release of European inflation and employment numbers. These come on Friday and their impact maybe lessened by the focus that will be on the central bankers symposium in Jackson Hole. Also of note will be the German business confidence numbers due for release later on this evening.

United Kingdom

The residential housing market remains under pressure in the UK. The House price index was -2.4% for July and is seemingly coupled with lower retail spending. Final GDP numbers for the 2nd quarter confirm a .5% contraction in activity. Unsurprisingly business investment numbers have also fallen, down 1.5% for the quarter. This week is again light on economic data in the UK. Expect the focus to be centered around any developments in Europe, or headlines from the central bankers symposium in Jackson Hole. Whilst the Pound Sterling has recovered from the lows seen a couple of weeks ago, the economy is now confirmed to have had its 3rd straight quarter of contraction and remains under considerable pressure.


It was a relatively quiet week for economic news in Japan last week. The trade balance numbers reveal a drop in demand for imports. This fall in import demand is indicative of a slow domestic economy, and will not be the result wanted at the Bank of Japan (BOJ). This week sees the retail sales, inflation and industrial production numbers due for release. Along with these numbers, expect the lead to come from the central bankers symposium in Jackson Hole.


Last week saw the July retail sales number disappoint the market in Canada. It was -.4% versus an expectation of a +.3% rise. This was followed by a scheduled speech by Bank of Canada Governor Carney. He spoke at length about the current vulnerability of segments of the Canadian housing market. Once interest rates started to rise from their current historic lows he pointed out that the current problems could become more acute. He also stated that the CAD was seeing demand as a safe haven market, and these flows were pushing longer term interest rates to record low levels. This week sees the monthly GDP numbers released on Friday, and these provide the domestic highlight for the week.  

Topics: Economic news