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Weekly FX Update - Markets stablise into year end.

Written by Sam Coxhead on December 18th, 2012.      0 comments

5:07 PM (NZT)

Market Overview:

This is the final Weekly commentary from Direct FX for 2012. We would like to take this opportunity to thank our client base for the on going support and appreciation. All the best for  the festive season, and an energetic and prosperous 2013! Whilst the commentary will recommence in the latter half of January, we are operational throughout the holiday period, with the exception of the statutory holidays.

Global sentiment has endured the final month of 2012 with surprising robustness. Little in the way of spectacular growth is expected in 2013, but less uncertainty in the early months should promote stability. An expectation that a fiscal agreement in the US will be reached at some stage. With Greece bedded down for the time being having been paid its 43 billion EURO tranche of aid funds, European sentiment has also improved. The Bank of Japan are likely to increase economic stimulation at this week’s monetary policy meeting or next, and this further adds towards support for the global economy. 2012 has been a year of sideways movement for the most part, with the NZ and Australian dollars seeing relatively contained ranges. Conditions point towards this trend continuing in 2013, with global growth’s slow grind back toward more historically average levels. Expect this to come with the usual splattering of increased fear and uncertainty.

Australia

There was little domestic focus for the Australian economy last week. Second tier data revealed lower than expected home loans activity, weaker business confidence and somewhat tepid consumer sentiment. The FED’s announcement of their new QE program boosted demand for commodities and the AUD saw demand with that. This week sees the final focus for 2012 come in the form of the RBA minutes from the last monetary policy meeting two weeks ago. These were unsurprising, and point towards a lower peak in mining investment, and a further softening in the non-mining economy that justified further support for demand. The market is pricing a further easing to the cash rate of 2.75% at the next RBA meeting on February 5th.

New Zealand

The strong demand for NZ dollars continued throughout the course of last week. The FED’s decision on monetary policy sealed the fate of the NZ, in a move that drove the commodity markets higher across the board. The was little in the way of domestic economic data, but this changes this week. Finally the market gets to digest the growth numbers for the 3rd quarter on Thursday. The market expectation is for a .5% number. The NZ Treasury half yearly fiscal update now forecasts 2013 growth at 2.3% and 2.9% for 2014, as the Christchurch rebuild continues to increase in pace. These numbers also see the Government remain on track to return to surplus in 2014/15.

United States

There was plenty of noise to digest in the US economy last week. The FED confirmed their intent to maintain the stimulatory economic conditions, but have given actual data guidance to when it may be eased back as the economy gains momentum. With inflation numbers revealing a tepid 1.8%, it will be sometime before the 2.5% target rate is threatening to drive interest rates higher. The FED also gave a target unemployment rate of 6.5% before monetary conditions would be tightened (leading to higher interest rates for man in the street). There was positive data in the form of manufacturing, and industrial production numbers. These indicate a business sector that has not pulled back investment as much as expected. But the fiscal negotiations remain painful to watch. Hopefully this week will see an agreement forged and this would further add to what should be considered relatively robust sentiment. This week sees further housing data, manufacturing and durable goods orders number up for release.

Europe

The latest tranche of 43 billion EURO’s of bailout funds has been sent to Greece. This coupled with the Spanish banking bailout will contain uncertainty for the coming months at least. Hopefully Greece can further efforts in 2013 to get its house in order and work towards returning to growth. Last week has saw German economic sentiment jump, but lower than expected manufacturing numbers. European inflation numbers remain at levels that require caution, with year on year inflation at 2.60%. Tomorrow’s business sentiment numbers round out the focus for the year.

United Kingdom

Last week saw better than expected employment and industrial orders numbers in the UK. There was also various statements made by Bank of England (BOE) officials with regards to trying to further support growth through extended quantitative easing (QE). With the economy struggling for growth credit rating agency S&P also revised the UK credit rating outlook from stable to negative and this undermined demand for the Pound Sterling at times. Later on today the latest UK inflation numbers will be released. These are important as they could affect the additional QE program at the BOE. Tomorrow sees the latest minutes from the BOE monetary policy meeting. Thursday sees retail sales released in what is the last number of note for the year.

Japan

The LDP party confirmed polling expectations with a relatively easy win in Sunday’s election. With coalition partners, new Prime Minister Abe will be able to put in place his economic stimulatory plans. His effectiveness in his previous time as PM was underwhelming, but certainly a fair more extreme attitude towards stimulating growth is evident now (read into this on going weakening of the YEN). It is unclear whether or not the BOJ will aggressive provide further stimulation at this week’s meeting or wait until early 2013. Certainly the election saw intense pressure mounting on the BOJ to be more aggressive. The YEN remains weaker across the board, and has been consolidating at these lower levels since the start of the week.

Canada

It was a very quiet weak for news in Canada last week. The trade deficit was lower than expected, and the manufacturing sector saw a slump in activity in November. This week sees the last of the notable data released. Retail sales numbers on Thursday are joined by the last monthly inflation and GDP numbers on Friday.

Major Announcements last week:

  • German Economic Sentiment 6.9 vs -11.4 expected
  • UK Unemployment 7.7% vs 7.8% expected
  • FED extend QE policy, targets 2.5% inflation and 6.5% unemployment
  • US Retail Sales +.3% vs +.5% expected
  • US Inflation .1% vs .2% expected
  • LDP wins lead coalition in Japanese elections
Topics: Economic news
 

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