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Weekly FX Update - The calm before the Storm?

Written by Simon Norrie on August 13th, 2012.      0 comments

4:25 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:

·         NZ Unemployment rate 6.8% vs 6.5% expected
·         Australian Cash Rate unchanged at 3.5%
·         Canadian Unemployment rate 7.3% vs 7.2% expected
·         UK Manufacturing -2.9% vs -4.0% expected
·         US Trade Balance -42.9B vs -47.4B expected
·         BOE leaves monetary policy unchanged as expected
·         Australian Unemployment rate 5.2% vs 5.3% expected
·         US Unemployment claims  361k vs 371k expected

Market Overview:

Last week proved to be quite settled compared to recent times. Whilst the markets continue to see periods of volatility, the levels are materially lower than a couple of weeks ago and perhaps shows building confidence in the ECB efforts to bring calm in the Euro-zone. In the US, with little in the way of top tier economic data, the focus fell on FED Chairman Bernanke speaking opportunities, however he made no reference to monetary policy. Interestingly the quarterly “unit labour costs” increased 1.7% verse an expectation of a +.5% rise. This fore shadowed increasing labour market activity and will be a welcome indicator to the FED. Trade balance numbers revealed a wider deficit than expected. In Australia the RBA’s monetary policy statement was measured, and possibly a more neutral statement than some of the speculative community were looking for. The cash rate remained unchanged. The result was a pickup in demand for the AUD. Reasonably strong employment numbers on Thursday, also gave impetus to the Australian dollar. The release of key Chinese data, if anything, was a little more positive than expected. In New Zealand last week disappointing 2nd quarter employment numbers were the focus. This week is relatively quiet on the data front. A series of US economic releases, especially the retail sales number on Tuesday, will be the focus. Also garnering attention will be the Euro-zone 2nd quarter preliminary GDP numbers, and UK’s CPI also, on Tuesday.


Economic data out of  Australia was relatively strong last week. The unchanged cash rate and neutral statement gave little insight from a speculative perspective. Employment numbers were better than expected and the unemployment rate remains at a quite impressive 5.2%. The release of the quarterly RBA Monetary Policy Statement on Friday confirmed the thinking that the current risk to economic growth from an international perspective still emanates from Europe. Given the RBA still has rates at 3.5%, they at least have plenty of room to cut rates if need be. On Friday Chinese trade numbers gave an initial dent to the AUD. The overall Chinese trade balance came in at $25.15 bn versus $35.05 bn expected, with exports up just 1.0% y/y (compared with 11.3 percent y/y last month). However overall Chinese growth has settled at a more sustainable level of around 7-8%, and this is still viewed as positive.

New Zealand

Last week the main focus come from the rather disappointing 2nd quarter employment numbers released Thursday. The unemployment rate increased from 6.7% to 6.8%, and came as an unpleasant surprise against the expectation of a fall to 6.5%. Interestingly, the detail reveals that Christchurch was the primary drag on the numbers, with other regions seeing flat employment growth. The Christchurch rebuild is dragging out and the boost to the economy when it finally starts will be very much appreciated. The New Zealand dollar traded heavy before and after the release, and this weakness was seen on a number of different pairings. This week with no key local data due for release, we expect reasonably tight ranges, with an eye on US and European developments for fresh direction.

United States

It was economically a relatively uneventful last week in the US, with little in the way of top tier economic data. Whilst FED Chairman Bernanke spoke a couple of times, it appeared he was deliberately trying not to make reference to monetary policy. The quarterly “unit labour costs” came in above expectations which shows increasing labour market activity which is a positive sign. On the flip side the trade balance numbers revealed a wider deficit than expected primarily due to a drop in exports. This is indicative of the issues that the UK also faces, with Europe being such a closely aligned economy. This week sees a bit more economic news on the calendar. Retail sales numbers on Tuesday start the focus. These are followed by the latest inflation numbers Wednesday, and manufacturing and consumer sentiment numbers Friday.


Last week there was little in the way of top tier economic data released in Europe. German industrial production numbers were again surprisingly weak for the European powerhouse, illustrating even one of the strongest economies is not immune to the economic slowdown. The important focus continues to be the bond yields of some of the Euro members (their cost of borrowing). The bond markets will continue to see periods of volatility although these levels are markedly lower than a few weeks ago and again shows the building confidence in the ECB efforts to keep the Euro-zone situation under control. This week will see the latest quarterly GDP and inflation numbers released for Europe and this will provide some focus for direction.

United Kingdom

Last week in the UK the focus was on the BOE Inflation Report. The important part from this report was the lowering of economic growth forecasts for 2012 and 2013. With lower growth, the lowering of inflation expectations was of little surprise. This opens the way for further stimulatory monetary policy in the coming year. BOE Governor King has basically discounted any chance of easing the cash rate, a clear signal that further quantitative easing is the most likely answer to ongoing stimulation. As the political pressure builds on the Government to end their period of austerity, it was notable that the report took time to support the government coalitions ongoing austerity drive. The GBP has recovered some of its recently lost ground against a number of its trading partners. This has been supported by the bounce back in demand for the EURO, as Europe’s problems remain the major hindrance restricting the recovery of the UK’s economic growth. This week we see the latest UK inflation, employment and retail sales numbers, as well as the release of the minutes from the last BOE monetary policy meeting.


The Japanese current account surplus was released on Wednesday last week and was higher than expected. The much anticipated BOJ monetary policy statement saw monetary policy once again left unchanged. This week sees the preliminary GDP numbers released later today, and these along with the minutes from the monetary policy meeting from last week will provide the economic data highlights for this week.


The Canadian economy saw a mixed number of key economic releases last week. The latest employment numbers were worse than expected, the number of building permits issued fell by less than expected and the monthly manufacturing numbers displayed a material bounce from their previous number. Trade balance numbers revealed a small deficit that was very much in line with expectations. This week sees the release of the latest inflations numbers on Friday, so for the bulk of this week the lead will come from the wider market appetite for risk.