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Weekly FX Update - 2nd April 2012

Written by Sam Coxhead on April 2nd, 2012.      0 comments

5:18 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:

·         US Pending Home Sales -.5% vs 1.0% expected
·         US Durable Goods Sales +1.6% vs +1.6% expected
·         EU German Business Climate Index 109.8 vs 109.7 expected
·         US Consumer Sentiment 70.2 vs 70.3 expected
·         UK Final GDP revised -.3% from -.2% previous
·         NZ NBNZ Business Confidence 33.8.0 vs 28.0 previous
·         US GDP final reading 3.0% as expected
·         CAD GDP +.1% vs +.1% expected
·         EU Summit agrees 700 billion EURO firewall
·         US Chicago Manufacturing PMI 62.2 vs 63.2 expected

Market Overview:

Global markets saw further range trading for the most part last week. There has been positive moves in Europe, to put firewall measures in place, to ensure funding for members that see their access to debt markets compromised. Equity markets rounded out a very positive first quarter to 2012. The S&P index set all time highs before retreating later in the week. In line with these positive moves, risk currencies saw demand initially before succumbing to risk aversion. The US dollar fought to maintain momentum as US FED Chairman Ben Bernanke did his best to temper sentiment. After the recently weaker news from China, yesterday saw their official manufacturing results released, and these were stronger than expected. This number shows resilience from the sector. This has seen sentiment start the new quarter on a positive note.
Tomorrow’s Reserve Bank of Australia (RBA) monetary policy meeting will be very closely watched. In the absence of any top tier economic data last week, the interest rate market gathered momentum and pushed forward expectations of a cut to the cash rate from the RBA. With a reduction in the cash rate to 4.00% now fully priced by their meeting in June, the market has moved to price in more than a 50% chance of a cut tomorrow. This is up from a 15 to 20% chance, at the beginning of last week. The Chinese manufacturing number has tempered that somewhat, but the fact remains the cash rate is very much likely to be lower in the next six weeks. Adding further flavor in Australia we have building approvals, retail sales numbers and the trade balance also this week, but undoubtedly the main focal event is the RBA.
There has been a particularly quiet economic calendar in New Zealand of late. This continues this week. The NBNZ Business Confidence survey was the main source of excitement last week with its consolidation of the previous bounce in sentiment, following the global growth fears towards the end of 2011. The RBA rate announcement will be closely followed by those with NZD interests. Last week as the Australian market increased the chances of a cut from the RBA, the NZ dollar finally broke through to higher levels against the AUD. It has been a good run for New Zealand exporters to Australia, but with the contracting interest rate differentials, the NZD is destined to outperform in the coming months.
In the US the news remains positive for the most part. The global economy really needs a strong US performance in the coming months, and it is going to be interesting to see if this pans out. Crucial to improvements will be progress in the labour market, and this coming Friday’s employment numbers will provide the latest insight. In a typically busy week in the US, we have manufacturing and services numbers due. Along with the minutes from the latest FED monetary policy meeting on Tuesday. Longer term US interest rates gave up some of their recent gains last week, but certainly pushed higher over the quarter. Rhetoric from the FED chairman keeps the prospect of further quantitative easing real, but we will likely have to see a deterioration in the numbers before this is bought into action, in whatever form it may take.
Progress is Europe was reasonably slow going last week. With debt concerns tamed for the time being, the EU summit produced the expected results of a substantial amount of funds for its debt firewall.  This week sees the European Central Bank make its scheduled monetary policy announcement. The result will almost certainly see no change in monetary policy, the accompanying statement will be closely watched as usual. The closely watched debt markets will continue to garner attention. With measures such as Spain’s budgetary announcement that it would cut up to 17% of its ministerial spending to become more common place. These types of steps are necessary but materially damage growth prospects. Evidence of this is another paring  of 2012 growth expectation’s, this time from the Bank of Portugal from -3.1% to -3.4%.
In the UK the relatively light economic data calendar proved to be beneficial for the Pound Sterling. It performed relatively well, throughout last week, amid further rumours of M&A activity providing substantial demand. The final release of GDP numbers saw a downward revision from -.2% to -.3%, but this was of limited impact. This week sees a return to activity for the economic data, with manufacturing, housing, construction and services numbers due for releases. The Bank of England make their scheduled monetary policy decision on Thursday, and this expected to leave both the cash rate, and quantitative easing levels unchanged.
The news for the Japanese economy continues to show patchy form. Stronger than expected retail sales numbers were encouraging last week. Today saw the release of the official “Tankan” manufacturing survey results and the reading was weaker than expected. As expected the YEN saw periods of reasonable demand heading into the end of March last week. With that corporate balance date out of the way, possibly we may see a return to a weakening YEN trend. This would be welcomed by the Japanese export sector. There are persistent rumours of further efforts to weaken the YEN to come from the Japanese authorities, adding further weight to the YEN weakening bias in the short term.
In Canada last week the focus was Fridays as expected +.1% GDP number. The annual budget produced little of surprise, housing numbers rose a little more than expected. The easing oil price is not supportive for the CAD, and further progress on the release of strategic oil reserves from the US, UK and France, has chipped away at sentiment. Employment and manufacturing numbers on Thursday are the main focus of this week.