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Weekly FX Update - 30th April 2012

Written by Sam Coxhead on April 30th, 2012.      0 comments

4:15 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:

·          HSBC Chinese manufacturing Survey 49.1 vs 48.3 previous
·          Euro-zone Manufacturing Survey 46.0 vs 48.1 expected
·          Australian Inflation +.4% vs +.6% expected
·          Canadian Retail Sales +.5% vs +.6% expected
·          US New Home Sales 328k vs 321k expected
·          UK Preliminary GDP -.2% vs +.1% expected
·          US Durable Goods Sales -1.1% vs +.6% expected
·          FED leave monetary policy unchanged as expected
·          RBNZ leaves monetary policy unchanged as expected
·          BOJ increases QE program by 10T YEN
·          US advanced GDP 2.2% vs 2.5% expected

Market Overview:

Global financial markets were orderly for the most part last week. Sideways price action within contained ranges were again the feature for the most part. But market movements do indicate that this sideways trading pattern maybe coming to an end at some stage soon. Surprisingly towards the end of last the US dollar saw pressure almost across the board. In a week when we saw the Spanish credit rating get downgraded, austerity ignited political tension across Europe and 10 trillion YEN in additional quantitative easing (QE) from the Bank of Japan, a weaker US dollar was not the obvious conclusion. This points toward investor cynicism that the US Federal Reserve (FED), will allow any material US dollar appreciation in the current environment.
In Australia, Tuesdays lower than expected inflation numbers ease the way for the expected 25 point cut to the cash from the Reserve Bank of Australia (RBA) tomorrow. There has been speculation about a deeper 50 pt to a cash rate of 3.75%, but this seems highly unlikely. Tomorrows cut will be accompanied by  the usual statement, but the quarterly RBA Monetary Policy Statement comes on Friday to add further colour to the situation. Also of note this week for the Australian economy is tomorrows release of the latest official Chinese manufacturing numbers.
The Reserve Bank of New Zealand (RBNZ) held the cash rate at the historically low rate of 2.50% as expected last week. In what was a very short statement, Governor Bollard made a verbal volley at the level of the NZD, adding that continued high levels would require them to “reassess the outlook for monetary policy settings”. However any change to the cash rate is highly unlikely in 2012. The focus for the week coming will be the first quarter employment numbers at their release on Thursday.
In the US the FED monetary policy decision and statement were fairly benign, but the dollar weakening tool of QE remains within reach if required. Consumer confidence numbers have held up reasonably well, with housing numbers gradually climbing from the lows. Advanced GDP numbers for the quarter were slightly lower than market estimates, but still within the expected range and comparatively healthy. One area of concern will be the trend back higher of the weekly jobless claims numbers. With the focus this week being the employment numbers on Friday, expect the labour market to be of central debate this week. Ahead of the employments numbers, the manufacturing index on Tuesday will be closely watched.
In Europe the picture was increasingly gloomy last week. Lower sentiment, manufacturing and employment numbers in peripheral states were added to by the S&P downgrade of Spain. Austerity inspired political instability and civil unrest are increasing. Interestingly calls have increased for easing of the current 1% cash rate. Barclays Bank are the latest issuing a note to clients stating that a lower cash rate would be more beneficial than further longer term funding efforts. The European Central Bank (ECB) monetary policy decision on Thursday provides the primary focus in Europe this week. No change is expected at this meeting, but the statement and comments will be closely followed for clues to direction going forward.
The preliminary UK GDP confirmed that the UK has slipped back into technical recession (2nd consecutive quarter if negative growth). However the -.2% number was within the expected range and the Pound Sterling was able to hold onto the majority of its recent gains. Consumer confidence numbers reiterate the buoyant retail sales numbers from last week. This week coming sees a flora of manufacturing, construction, housing and services numbers that will provide updated colour to the UK economy. Close neighbor, and primary export market Europe, presents a hurdle for any improvement in the UK outlook.
Canadian retail sales numbers were close to expectations last week. The recent CAD appreciation appears to have been driven by a number of factors. An increased demand for fixed income offerings, continued buoyant oil pricing and the reasonable performance of the US economy all being positive factors. This week the focus comes in the form of the monthly GDP numbers late Monday ahead of the manufacturing index on Friday.
Last week was an interesting one for the Japanese economy. The BOJ increased they QE program by a largely expected 10 trillion YEN. Officials will be disappointed with the result in that the YEN has seen reasonably strong demand since the announcement. Progress this week will be closely watched to ascertain whether or not the recent moves have been flow driven, or the tool has become less affective. There is little in the way of economic data of impact due for release this week, as it is Golden Week in Asia. Expect the lead to come primarily from the wider equity markets.