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Weekly FX Update - 27th Nov 2012

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

4:56 PM (NZT)

Market Overview:

The last week has seen a continuation of the recent holding pattern in the wider financial markets. Whilst equity markets managed to push higher, interest rate and foreign exchange markets remained locked in mostly familiar ranges. The EU have just announced an agreement to extend funding to Greece for the next tranche of funds. Markedly increased spending cuts will be necessary, in the requirement to have a debt/GDP ratio of 120% by 2020, against the previous target of 144%. This announcement caused a small flurry of demand for risk assets, but nothing dramatic or inspiring. Negotiations on the US fiscal situation continue in earnest, without any obvious progress at this time. Assuming there will be a compromise by parties in the US, the downside to risk assets should be somewhat limited in the short term. Balancing this are economic indicators that point towards lower than previously forecast level of global economic activity in 2013. So expect the directionless price action to continue into 2013, as the painfully slow emergence of economic growth plays out.


Last week was a quiet one for economic news in Australia. The latest Reserve Bank of Australia (RBA) monetary policy meeting minutes revealed little in the way of surprise, and the tone points towards further policy accommodation (lower interest rates), at some point, if “appropriate”. An easing to a cash rate of 3.00% has been factored in by the markets over the next few months. Of material impact for Australian dollar demand was the news that Chinese manufacturing numbers had reached 13 month highs and actually expanded in the month of October. This week is again light on Australian domestic focus with just private capital expenditure numbers on Thursday to provide a focus. Next week sees the RBA monetary policy decision on Tuesday as the central focus of a very busy week. Also of note, Monday sees the release of the retail sales data, building approval on Tuesday, 3rd quarter GDP Wednesday, employment numbers Thursday and the trade balance Friday.

New Zealand

Last week saw the latest Global Dairy Trade (GDT) auction results point towards a further stabilisation of dairy prices, which is encouraging for the New Zealand dairy sector. After registering a 3rd straight month of gains, there has been an upward revision of expectations to around $5.70 NZD per kilogram for the 2012/13 pay out. This week is again light on economic news with just the NBNZ/ANZ business confidence survey on Thursday to provide focus. Next week sees the RBNZ make its final monetary policy decision for the year. Expect no change at this meeting, albeit the interest rate market has priced in a small chance of an easing.

United States

The US housing market continued to produce positive signs last week. Sporadic demand in the stock markets added to some positive sentiment at times in the US. Interestingly, these positive moves come against a back drop of nervousness as the US government lurches towards the “fiscal cliff”. Certainly concerns are not at the level they were a couple of weeks ago, but material progress is required to maintain this sentiment. Also of interest last week were comments from US Federal Reserve Chair Bernanke, stating that the unemployment rate was still 2 - 2.5% away from long term averages and that it will take time to fall. He also added that negative effects of the pending “fiscal cliff” were already being felt, and an early resolution was the best case scenario. This week sees durable goods sales, consumer sentiment and preliminary 3rd quarter GDP results provide the interest.


Greece continues to dominate the near term focus in Europe. Whilst all the time Spanish officials will be working hard in the back ground to find the best solution for their funding issues in 2013. The EU finance ministers and officials from the IMF are currently meeting with the intention of finding an agreement on the next 44 billion of funding assistance for Greece. EU ministers seem to have refused IMF suggestions of a debt write off for Greece to lighten the debt load. This meeting is being very closely followed. Comments from ECB officials stated that the core ECB view on Spain remains that the country will require assistance in 2013. This week also sees a return to the focus of economic news. Inflation, retail sales and the unemployment numbers will all be closely watched.

United Kingdom

Last week was a quiet one for economic news in the UK. Dominating the focus was the release of the Bank of England’s monetary policy meeting minutes. These indicate the banks openness to further policy accommodation to ensure emergence from the current period of stagnant economic growth. Certainly progress in Europe will be of some comfort to the BOE, so regional sentiment can improve. This week sees the release of the final GDP numbers for the 3rd quarter and a further opportunity to insight from the BOE as Governor King speaks on financial stability on Thursday. Also of note is last night’s appointment of current Bank of Canada Governor Mark Carney to be the next Bank of England Governor starting in July 2013. Carney is a very well regarded central banker, and the Pound Sterling reacted positively to the somewhat surprising announcement.


The situation in Japan remains highly charged. The December 16th election looks to be a vote on how aggressive authorities should be with regards to economic stimulation. The polls still tip the LDP party as winners with their ultra-stimulation view. This plays out with a back drop of the Bank of Japan minutes that reveal internal debate surrounding the extent of their part to play in reviving the economy. The upshot of this continues to be weaker YEN demand in the short term. But given the large move, some kind of correction should not be ruled out at some stage. Economic data remains of secondary importance in the current environment, with retail sales on Thursday and inflation and industrial production Friday to be of passing interest.


It has an interesting week for the Canadian economy. Retail sales numbers for October were weaker than expected, and this continues a recent global theme. Inflationary pressure remain bubbling away with a .3% increase for the month. This legitimises the comments from various Bank of Canada officials with regards to increases in the cash rate overtime. This week’s focus comes solely from the monthly GDP number on Friday. The overnight announcement that Bank of Canada (BOC) Governor Carney is to join the BOE mid 2013 was a surprise. This is mildly unsettling for the BOC, who will have to initiate the recruitment process immediately.

Major Announcements last week:

  • EU announce new Greek debt deal
  • US Existing Home Sales 4.79m vs 4.76m expected
  • BOJ leaves monetary policy unchanged
  • BOE announces current BOC Gov. Carney as new Governor starting mid 2013.
  • Chinese HSBC Manufacturing PMI 50.4 (13mth highs)
  • French and German Manufactruing higher than expected
Canadian Retail Sales 0.0 vs +.5% expected