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Weekly FX Update - 6 February 2012

Written by Sam Coxhead on February 6th, 2012.      0 comments

5:20 PM (NZT)

Currency Commentaries:

Click to access our currency pair reports:  
NZD/USD                                      AUD/USD                                    GBP/USD
NZD/AUD (AUD/NZD)                    AUD/GBP (GBPAUD)                    GBP/EUR (EUR/GBP)
NZD/GBP (GBP/NZD)                    AUD/EUR (EUR/AUD)                   GBP/RAND

Major Announcements last week:

·         Canadian GDP -.1% vs +.2% expected
·         Chinese Manufacturing PMI 50.5 vs 49.8 expected
·         UK Manufacturing PMI 52.1 vs 50.1 expected
·         US ISM Manufacturing PMI 51.1 vs 54.6 expected
·         UK Services PMI 56 vs 53.5 expected
·         Euro-zone Unemployment rate 10.4% as expected
·         Canadian Unemployment rate 7.6% vs 7.5% expected
·         US ISM Non-Manufacturing PMI 56.8 vs 53.1 expected
·         US Employment growth 243k Jobs vs 150k expected
·         US Unemployment rate 8.3% vs 8.5% expected

Market Overview:

The wave of optimism washing through financial markets in 2012  continued to gather pace last week. The better than expected run of economic data continued. These good results came from a wide range of economies. Friday’s strong US employment numbers saw the US dollar stablise. A small bounce in the fortunes of the US dollar may continue to eventuate, as the near term likelihood of further quantitative easing (QE) from the Federal Reserve (FED) diminishes . News from Europe remains mixed. The European Central Banks (ECB) efforts to provide longer term funding to banks are having a significantly positive effect across debt markets, but  a resolution on the writing down of Greek debt remains a work in progress. Global stock markets were generally higher on the week, as the positive sentiment spread.
In New Zealand there was no top tier economic data last week. The NZ dollar remained in demand, in what appears to be further asset re-allocation from AUD to NZD. This switch from AUD to NZD comes ahead of the Reserve Bank of Australia (RBA) interest rate announcement tomorrow, and is to be expected as the cash rate differential between the two economies decreases. The NZ domestic data focus this week will be solely on the labour markets. The quarterly Labour Cost Index and unemployment numbers are due for release on Tuesday and Thursday respectively.
The Australian dollar remains at what can be considered  as extended levels. The more positive global outlook is providing the driving force behind demand. Tempering further enthusiasm, is the RBA monetary policy decision tomorrow. The cash rate is expected to be cut 25pts to 4%, with expectations it will be at 3.5% by midyear. Also of note is the quarterly release of the Monetary Policy Statement from the RBA on Friday. This document provides valuable insight into how the RBA view both the domestic, and global outlooks.
The positive 4th quarter 2011 US economic data has continued into 2012. Friday’s much stronger than expected employment numbers will douse much of the enthusiasm for further QE in the short term. Broad based growth momentum is starting to build with both monaufacturing and non-manufacturing numbers beating expectations. This week is light on economic data in the US, with just a couple of speeches from FED chairman Bernanke, and consumer sentiment on Friday expected to provide any domestic US excitement.
In Europe the picture remains somewhat mixed. The ECB initiative to provide longer term funding facilities to the banking sector is certainly easing the way back towards more normal money market operations. Obviously the potential sticking point to more wide spread relief remains centered on Greece in the short term. The extent of private write downs on Greek debt remains the point of contention. Until agreement on this is reached, Greece’s place at the Euro-zone table remains in doubt.
Up until Friday the market had expected 75bio worth of further QE from the Bank of England (BOE) at their monetary policy meeting on Thursday this week. However the much stronger than expected services sector numbers have seen expectations pared back somewhat towards 50bio. The more positive signs for the economy are encouraging, but any outright optimism is unlikely to eventuate fully until a sustained period of positive news is seen. Apart from the BOE announcement on Thursday, housing numbers Monday, and  manufacturing numbers Tuesday, will be closely watched.
In Canada last week the slightly disappointing  growth and employment numbers saw the Canadian dollar under renewed pressure. The US employment numbers stemmed the downward pressure after their release, to support the CAD. The monthly GDP number came in at 2.4% against an expected -.1%, and employment growth was weak, pushing the unemployment rate up from 7.5% to 7.6%. This week sees manufacturing numbers released Tuesday, building numbers Wednesday, and the trade balance on Friday.