6:00 PM (NZT)

Currency Commentaries:

NZD/USD                                      AUD/USD                                   
NZD/AUD (AUD/NZD)                    AUD/GBP (GBPAUD)                   
NZD/GBP (GBP/NZD)                    AUD/EUR (EUR/AUD)                   NZD/EUR (EUR/NZD)
NZD/CAD                                                            
NZD/YEN

Major Announcements last week:

·         NZ RBNZ Inflation Expectations Survey 2.5% from 2.8% previously
·         Euro-group confirms bailout funds to Greece
·         Canadian Retail Sales 0.0 vs +.1% expected
·         China HSBC Manufacturing 49.7 vs 48.8 previously
·         German Business Sentiment 109.6 vs 108.7 expected
·         UK revised GDP 4^th QTR -.2% as expected
·         US revised Consumer Sentiment 75.3 vs 72.8 previously
·         Australia: Gillard gets vote to continue as Labor leader

Market Overview:

Last week the foreign exchange markets took their lead from Europe, and the unfolding events in Greece. The progression from Greek Parliamentary voting of austerity measures, was followed by the commitment of a further 130 billion EURO worth of bailout funds from the Euro-group. The final leg in the process will be attaining 75% participation of private sector involvement (PSI) in the proposed debt swap. Greece has opened the process and it is widely expected to succeed in getting at least 75% participation. The progress of the PSI process, and the European Central Bank’s (ECB) Long Term Refinancing Operation (LTRO), will again provide the lead this week. The previous LTRO from the ECB is widely accepted as stablising financial markets in December. Much is expected from this round, with around 500 billion EURO expected to be lent to banks and institutions for the three year period. The YEN also continued to weaken last week, as the follow through from the Bank of Japan (BOJ) quantitative easing (QE), was boosted by the positive sentiment driven from Europe. Stock markets are at or close to post 2008 highs, albeit their momentum waning somewhat. Oil continues to post strong gains as continued political tensions provide the driving force.
 
In Europe the mood continues to lighten, as the feeling of pending doom continues to dilute. However the pressure will remain for months, if not years, until sovereign balance sheets are bolstered for the most part. Economic growth will become more closely followed from now. German business sentiment was better than expected last week, and inflation and employment numbers on Wednesday and Thursday this week will gain attention. The expected completion of the Greek debt swap will take time, so potential speed bumps remain a risk to the EURO’s resurgent form from its recent lows in January.
 
Last week  was a quiet one for New Zealand economic data. The Reserve Bank of New Zealand (RBNZ) two year Inflation Expectations Survey revealed a tame inflation outlook. The New Zealand dollar looks like it has lost its upward momentum for the most part, with the exception of the happily downtrodden Japanese YEN. This week just sees the release of the NBNZ Business Confidence Index on Wednesday.
 
In Australia the ugly battle for the Labor Party leadership has not been too derailing for the markets. Today saw the confirmation that PM Julia Gillard retains the leadership following the challenge from previous PM Kevin Rudd. Like the NZD, the Australian dollar looks somewhat labored at current levels on multiple pairings. The Reserve Bank of Australia (RBA) monetary policy meeting minutes confirmed the RBA are on economic data watch for further moves in the cash rate. Any softer than expected top tier data will see the market increase the likelihood of a cash rate reduction. This week sees the release of the latest retail sales numbers on Wednesday, and building and private capital expenditure on Thursday.
 
In the US the economic calendar was also light last week. The housing market remains the primary concern to the improving economy. Of note were consumer sentiment numbers which beat expectations. This week sees an array of economic data due for release. Key will be the preliminary GDP numbers on Wednesday, and manufacturing numbers on Friday. FED chairman Ben Bernanke also makes his semi-annual monetary policy testimony to the House Financial Services Committee on Wednesday. It will be a relief to US manufacturers to see the EURO recovery in the recent weeks, a further extension higher from the EURO would provide further relief to those US exporters.
 
The UK economy remains under pressure. Last week was a relatively quiet one for economic data. The Bank of England (BOE) monetary policy meeting minutes were interesting, with two of the seven members voting for 75 billion more QE, than the 50 billion that was decided on. This sentiment should cap any potential for real GBP strength in the short term at least. Revised GDP numbers were as expected at negative growth of .2% in the final quarter of 2011. This week is quiet again, with just manufacturing numbers Thursday and construction numbers on Friday due for release.
 
There was no economic data in Japan last week, but exporters finally got plenty to cheer about. The YEN continued its move lower across the board following the QE initiative from the bank BOJ. The reduced level of risk aversion saw further supply of YEN come to the market, to accentuate the moves. This week sees Japanese retail sales numbers on Monday and inflation data on Thursday. Expect these to be of limited influence, as an apparent fundamental shift continues to weaken the YEN.
 
Retail sales number in Canada were slightly worse than expected when released last week. They came out flat against an expectation of a .1% rise. The increasing level of the oil price should benefit the CAD at some stage soon, if political tensions surrounding Iran and Syria remain high. The week coming is a relatively quiet one for the Canadian market, with the focus coming from the monthly GDP numbers on Friday.

4:36 PM (NZT) The NZDYEN pair has had a relatively contained week when compared to recent weeks. Unsurprisingly the NZD has seen a little further appreciation, as the YEN has been under further pressure across the board. The price action has been driven by increased appetite for risk towards the end of the week. This coupled with the weakening trend of the YEN, has eased the way higher for the NZ dollar. Next week the lead will  continue to come from the wider market appetite for risk, and focus will be on the NBNZ Business Confidence Survey results on Wednesday.
 
The current interbank midrate is:                                                            NZDYEN 67.10                              
                                                               
The interbank range so far this week to date has been:                 NZDYEN 66.27 - 67.31             

4:36 PM (NZT) The Australian dollar remains close to record levels against the CAD. The CAD did show signs of strength early in the week, but the capitulation of the US dollar once the EURO rebounded, saw the CAD follow it lower. Further strength from current levels will prove to be harder fought for the AUD, as it approaches the upper levels of the recent 1.0600 - 1.0750 range. Next week the political situation in Australian will be a key focus, with the Australian economic data likely to take a back seat. Canadian GDP numbers on Friday will be closely watched, and as usual for the CAD the USD fortunes will be a leading factor.
 
The current interbank midrate is:                                                            AUDCAD  1.0712                                                                                        
 
The interbank range so far this week to date has been:                 AUDCAD 1.0592 – 1.0737

4:35 PM (NZT) The EURO finally managed to take back some of its lost ground against the Australian dollar this week. From the start there was demand for EURO over AUD, as the market has seen a bit of a scramble to cover EURO sold positions. The market faith that the Greek bailout funds would be secured was repaid, and further steps towards the debt swap have been made. The volatile Australian political situation has had limited impact on the AUD so far, but a drawn out and ugly leadership batter next week could test investor resilience. The ECB LTRO program next week will also be a key focus. Consolidation through the .8010 (EURAUD 1.2480) level has not been achieved as yet, and will be required to indicate the pairs ability to push for further appreciation from the EURO, back from its record low levels.
 
The current interbank midrate is:                                                            AUDEUR  .8031                     EURAUD 1.2452                                                                                         
 
The interbank range so far this week to date has been:                 AUDEUR .7995  -  .8162      EURAUD 1.2252  - 1.2508

4:32 PM (NZT) This week saw initial weakness from the AUD before the pairing turned around and reversed the move, to be currently close to where it started. AUD weakness came with a weaker EURO, as the agreement on extended bailout funds took time to come. The turning point for the pair came after the BOE monetary policy meeting minutes were released. The bias towards further QE, has seen the GBP under renewed pressure across the board, which will please exporters and policy makers in the UK. The pairing remains close to extreme levels, which obviously represent good value buying of GBP, from an historical perspective. In the short term expect further range trading from this pair in the broader AUDGBP .6650 - .6850 (GBPAUD 1.4600/1.5040) range.  
 
The current interbank midrate is:                                                            AUDGBP  .6818                     GBPAUD 1.4667                                                                                       
 
The interbank range so far this week to date has been:                 AUDGBP .6728 - .6825      GBPAUD 1.4652 - 1.4863

4:31 PM (NZT) This week has been another volatile week for this pair, albeit in a relatively contained range. After seeing some initial strength from the AUD, the US dollar dominated throughout the middle period before the EURO inspired the AUD to fight back from the lows to the current levels . Further upside from here for the AUD should remain harder fought, especially above 1.0800. Next week could prove interesting as the ECB looks to its longer term funding offer (LTRO) to banks, and the Labour Party leadership stoush plays out in Australia. GDP numbers and the FED Chairman Bernanke’s speeches in the US will also be very closely monitored.
 
The current interbank midrate is:                                                            AUDUSD  1.0747                                                                                        
 
The interbank range so far this week to date has been:                 AUDUSD 1.0594 - 1.0816

4:30 PM (NZT) The NZD has been under subtle, but constant pressure from the mildly resurgent EURO this week. It has been interesting to see how this has played out so far. Apart from progress in Greece, the EUR demand has also been fanned by solid German business sentiment numbers, and talk of a lower than previously expected up take of the next batch of LTRO funds from the ECB. Having broken various resistance levels again a range of different currencies, the EURO appreciation may have a little room to move yet.  Further focus on the upcoming LTRO will continue to increase next week. Business confidence numbers in NZ on Wednesday will be closely watched, as will the barrage of economic indicators in Europe.
 
The current interbank midrate is:                                                            NZDEUR .6261                               EURNZD 1.5972
                                                               
The interbank range so far this week to date has been:                 NZDEUR .6234 - .6367                EURNZD 1.5706 - 1.6041

4:30 PM (NZT) The NZD has been under subtle, but constant pressure from the mildly resurgent EURO this week. It has been interesting to see how this has played out so far. Apart from progress in Greece, the EUR demand has also been fanned by solid German business sentiment numbers, and talk of a lower than previously expected up take of the next batch of LTRO funds from the ECB. Having broken various resistance levels again a range of different currencies, the EURO appreciation may have a little room to move yet.  Further focus on the upcoming LTRO will continue to increase next week. Business confidence numbers in NZ on Wednesday will be closely watched, as will the barrage of economic indicators in Europe.
 
The current interbank midrate is:                                                            NZDEUR .6261                               EURNZD 1.5972
                                                               
The interbank range so far this week to date has been:                 NZDEUR .6234 - .6367                EURNZD 1.5706 - 1.6041

4:26 PM (NZT) This pair remains close to the top end of its recent range. The NZD has continued to apply pressure on the AUD, but for the time being has been unable to cleanly break through resistance (AUDNZD support). The RBA monetary meeting minutes confirm they will be very much data focused going forward, so any softer economic numbers will see the NZ dollar outperform. Next week will see the focus on the Australian political situation for the most part, as it is unlikely that the economic data will hold any game changing surprises for the RBA. A messy resolution of the Australian Labour Party leadership issues may enable the NZD to further appreciate. A consolidated move through the .7830 level (AUDNZD 1.2780), would open the way for further NZD appreciation.
 
The current interbank midrate is:                                                            NZDAUD .7802                            AUDNZD 1.2817
                                                               
The interbank range so far this week to date has been:                 NZDAUD .7772 - .7817             AUDNZD  1.2793 - 1.2867
 

4:25 PM (NZT) This pair remains close to the top end of its recent range. The NZD has continued to apply pressure on the AUD, but for the time being has been unable to cleanly break through resistance (AUDNZD support). The RBA monetary meeting minutes confirm they will be very much data focused going forward, so any softer economic numbers will see the NZ dollar outperform. Next week will see the focus on the Australian political situation for the most part, as it is unlikely that the economic data will hold any game changing surprises for the RBA. A messy resolution of the Australian Labour Party leadership issues may enable the NZD to further appreciate. A consolidated move through the .7830 level (AUDNZD 1.2780), would open the way for further NZD appreciation.
 
The current interbank midrate is:                                                            NZDAUD .7802                            AUDNZD 1.2817
                                                               
The interbank range so far this week to date has been:                 NZDAUD .7772 - .7817             AUDNZD  1.2793 - 1.2867
 

4:20 PM (NZT) It has been an interesting week, with the lead coming from fluctuating US dollar demand for the most part. The first half of the week saw the NZDUSD weaken, as US dollar demand strengthened, leading up to and immediately following the Euro-group agreement to extend the bailout funds to Greece. Yesterday the demand for the US dollar started to wane, with various factors driving the demand for “risk assets”, such as the NZDUSD. Further progress in Greece towards the debt swap, and good business confidence numbers from Germany helped turn the tide in favor of risk assets. The EURO rally has also dragged the NZD, and other currencies higher. The pair remains in its recently familiar range, and will see solid resistance come in if it pushes on to test its previous cap around the  .8420 level.
 
The current interbank midrate is:                                                            NZDUSD .8372  
                                                                                         
The interbank range so far this week to date has been:                 NZDUSD .8256 - .8429
 

4:15 PM (NZT)
The Australian Economy:
The release this week of Reserve Bank of Australia (RBA) monetary policy meeting minutes, confirmed the recent market moves. The RBA is happy with the current level of the cash rate, given the improved global outlook. Looking forward the data will be considered, and if frailities return to the international arena, there is room to ease the cash rate further. The Chinese HSBC manufacturing numbers (a key index of the health of the Chinese economy), improved and has now stabilised off it lows, although it does still indicate a contracting environment. Chinese authorities this week also cut the banks Reserve Requirement Ratio. This has the effect of freeing up lending, in an effort to maintain growth at a reasonable level. Given the close relationship between the Chinese economy and demand for Australia’s exports, this is viewed as a positive for Australian demand. The shakey nature of the leadership of the ruling Labour party has been exposed this week, with another head to head likely to play out between Rudd and Gillard. Markets like certainty, and this could potentially slow demand for Australian dollars in the short term. Next week sees the release of retail sales numbers on Wednesday, and building and capital expenditure data Thursday.
 
The US Economy:
A quiet week so far in the US. Existing home sales numbers were close to expectations and the weekly jobless claims numbers at 351k continuing their recent stronger trend. Next week sees a return to a busy economic calendar with an array of numbers to create noise. Of note will be preliminary GDP numbers on Wednesday and manufacturing data on Thursday. FED chairman Ben Bernanke also gets to speak on Wednesday, at his semi-annual monetary policy report to the House Financial Services Committee. As usual, his words will be very closely followed. Interestingly the yield on US debt has started to move a little higher this week, and could be the start of a move back closer to normality, which in theory would be US dollar supportive.
 
The UK Economy:
A relatively quiet week in the UK for economic data. Interestingly the Bank of England (BOE) monetary policy meeting minutes revealing a board vote split of 7-2, with 2 members voting for 75billion worth of extra quantitative easing (QE), as opposed to the 50 billion that was passed. This voter split hints towards the bias remaining in place for further QE, and chipped away at some of the demand seen for GBP at the start of the week. Revised GDP numbers later today round out the week, and are expected to come out at -.2% for the final quarter of 2011. Next week is also relatively quiet in the UK, with just manufacturing data Thursday and housing and construction numbers on Friday.
 
The New Zealand Economy:
A quiet week on the domestic data front. The focus was the Reserve Bank of New Zealand’s Inflation Expectations Survey release. This survey showed lower expectations of 2 year inflation from respondents. This again supports the view of a stable cash rate for the bulk of 2012 at least. Moves by Chinese authorities to free up bank lending in China by the reduction of the Reserve Requirement Ratio (RRR), by 50pts, should help stimulate the NZ export sector. Next week is again light on economic data, with just the NBNZ Business Confidence Survey to provide some focus.
 
The Canadian Economy:
The focus for the week in Canada has been the retail sales numbers. These came in close to expectation and had limited effect on sentiment. Also of note were comments from Bank of Canada head about the effects of a pull back in the property market. In a shot over the bow to lenders, he said because of the leveraged nature of the residential market, it remains a frailty to the economy, and could wipe out the small amount of growth, should any dramatic decrease in property prices occur in the short to medium term. Next week the focus will be the GDP numbers due for release late on Friday. Also adding to interest is the heightened level of the oil price due to the Iran situation. This is a positive for Canada’s oil exporting regions.
 
The Japanese Economy:
The Japanese authorities and wider economy will have been constantly watching the currency markets this week. So long has it been since the YEN saw a sustained period of weakness, it will be very well received. Leading other pairings has been the USDYEN pair, and whilst it has pushed back down through the .8000 level overnight, today it has resumed its very recent upward trend. The effect that the quantitative easing by the Bank of Japan (BOJ) will be welcomed relief for Japan’s export sector that has been under pressure since the Yen strength began mid 2007. Next week’s inflation numbers should clearly display the room the BOJ has with regards to price pressure. There has only been four months of small inflation since Mar 2009, with the rest of the months showing deflationary price pressures.
 
The European Economy:
After a marathon meeting on Monday, the Euro-group of European Finance Ministers agreed to send Greece the 130 billion EURO worth of bailout funds they required to avoid an uncontrolled debt default. Subsequently the Greek Parliament have voted positively for the debt swap deal being arranged by European officials. Final approval from the majority of the bond holders is necessary to complete this part of the survival process for Greece, and its current membership in the Euro-zone. At this stage it is likely that the debt swap will be completed by the final deadline in mid March at the latest. On a further positive note, last night German business confidence numbers again beat expectations. With the next round of Long-term Refinancing Operations (LTRO) next week from the ECB, the market will start to focus on this. Decembers initial LTRO has been widely attributed to have stablised the credit markets in Europe, and wider markets globally. The LTRO is effectively quantitative easing in another form, so a lower requirement of LTRO funds from European banks would provide further demand for EURO.

6:00 PM (NZT)

Currency Commentaries:

NZD/USD                                      AUD/USD                                   
NZD/AUD (AUD/NZD)                    AUD/GBP (GBPAUD)                   
NZD/GBP (GBP/NZD)                    AUD/EUR (EUR/AUD)                   NZD/EUR (EUR/NZD)
NZD/CAD                                                            
NZD/YEN

Major Announcements last week:

·         Japanese prelim. GDP -.6% vs -.3% expected
·         Australian Home Loans 2.3% vs 1.9% expected
·         BOJ announce 10 Trillion YEN QE program
·         UK Inflation 3.6% YoY as expected
·         German Economic Sentiment 5.4 vs -11.8 expected
·         US Retail Sales +.7% vs .6% expected
·         NZ Retail Sales 2.9% vs 1.1% expected
·         European GDP -.3% as expected
·         Australian Unemployment rate 5.1% vs 5.3% expected
·         US Philadelphia Fed Manufacturing Index 10.2 vs 9.0 expected
·         UK Retail Sales .9% vs -.3% expected
·         Canadian Inflation .2% vs .1% expected
·         US Inflation .2% as expected

Market Overview:

Last week the financial markets saw further intraday volatility, whilst mostly within contained broader ranges. Generally the sentiment within markets remains positive, but there is an underlying vulnerability to shocks that it easily exposed. The uncertainty surrounding progress towards a Greek debt resolution remains the focus. Daily swings in the likelihood of success were seen last week. Most contention seems to surround EU Finance Ministers trust that Greek politicians will carry out the austerity measures they have pledged to make. Current expectations are of a positive announcement to be made at some stage in Europe today (Monday), but delays have been numerous and certainly would not surprise. Elsewhere in the markets, the focus came in Asia late last week. Japan surprised with a 10 trillion YEN quantitative easing (QE) initiative to help stimulate the Japanese economy, and provide a reason to lower demand for the YEN. In China authorities again lowered the reserve ratios on the banking sector. This has the effect of boosting lending and sustains economic growth. A cooling property sector and gloomy outlook for the export sector has prompted the move. Markets start the week with a positive tone, in expectation of progress in Europe, and increased appetite for risk assets following the stimulus added in China.
 
In Australia last week the news was all about the stronger than expected employment numbers. The debate now focuses on the effect of these numbers on the outlook for the cash rate. The Reserve Bank of Australia (RBA) are unlikely to feel further pressure to reduce the cash rate with numbers like these. This week sees the release of the RBA monetary policy meeting minutes on Tuesday, and these will be closely monitored. RBA Governor Stevens also speaks twice this week, first on Tuesday, and then again on Friday. Any comments with regards to monetary policy will see reaction from the market.
 
In New Zealand the record 4^th quarter retail sales figures released last week saw demand for the NZ dollar climb. This week is relatively quiet for NZ economic data, so the lead will come from the wider markets appetite for risk, and will be driven by outcomes in Europe. Tuesday does see the release on the Reserve Bank of New Zealand’s inflation expectations survey, but in the current environment the results will have very limited impact on the foreign exchange market.
 
In the United States the economic picture continued to brighten last week. Continued signs the labour market is improving will be welcomed by the Federal Reserve (FED). The labour and housing markets remain the primary concern in the US. With numbers showing improvement, the likelihood of further QE from the FED in the short term has been reduced. With a lower chance of further QE, longer term interest rates have continued to grind higher in the US, and this will support the US dollar overtime.
 
This week will certainly prove to be very interesting in Europe. The success of the European Central Bank’s (ECB) longer term funding program has reduced the financial vulnerability in Europe somewhat. Ironically, and understandably, as the financial stability has increased, the political gamesmanship has also increased. Greek politicians have seen further pressure from their Euro-zone partners, to provide assurances the spending targets will be met. It is easy to be skeptical of Greek intentions, given the inability to enact commitments to date. Euro-group meetings today (Monday), will hopefully come up with a positive result for Greece and enable the focus to move on to the next step towards the debt swap goal. Economic data will remain of secondary importance to EURO sentiment in the meantime.
 
The UK economy continues its slow return to growth. With its imported inflation problems finally starting to work their way through the system, the pressure will come off the consumer. Retail sales numbers on Friday were demonstrably better than expected and maybe a good indicator that the consumer is starting to grow in confidence. This week will see the focus on the Bank of England’s (BOE) monetary policy meeting minutes on Wednesday. A change from the previous unanimous decision to increase the level of QE, would indicate a  lower chance of further increases to the program. Friday sees the release of the revised GDP numbers for the 4^th quarter 2011, and this will be closely watched.
 
There was surprise in Japan last week, when the Bank of Japan (BOJ) announced a new 10 trillion YEN QE program. They will be very happy with the reaction from the foreign exchange market, as the YEN has given up ground almost across the board since the decision. This week coming sees little on the economic calendar in Japan. The Yen’s performance will likely be driven by its efforts against the US dollar, as it continues to move back from its historic highs. The GDP numbers on Monday showed a -.6% reduction in growth for the 4^th quarter 2011 and no doubt will have contributed to the BOJ’s decision to move ahead with the QE program.
 
The news on the Canadian economy was reasonably light last week. The focus was the inflation number released on Friday and at .2% for the month, this was .1% higher than expectation. This week will again see the lead predominantly from offshore, with only retail sales numbers on Wednesday to provide the focus. The Canadian dollar continues to be under pressure from both the Australian and New Zealand dollars, but should see demand pick up if the US economic numbers continue to improve in the coming months.

5.35 PM (NZT) This pairing continued to trade in its recent range, close to the record high of 1.0783. There has been little news in Canada this week, so most of the focus was based in Australia. The better than expected employment numbers certainly gave the AUD a boost, and will probably preclude any chance of a cash rate cut at next month’s monetary policy meeting from the RBA. This should underpin AUD support, should any softer price action eventuate. Whilst the global economic data enjoys its recent positive upswing, any dips in the AUD should be relatively shallow in the short term. The Greek debt swap situation remains the primary risk to the AUD fortunes in the short term.
 
The current interbank midrate is:                                                            AUDCAD  1.0731                                                                                         
 
The interbank range so far this week to date has been:                 AUDCAD 1.0641 - 1.0752

5:32 PM (NZT) The EUR has again been under pressure this week, after finishing last week on the front foot against the AUD. Further concerns about the political intent in Europe to release the extended bailout funds to Greece,  has created the uncertainty for the EURO. The AUD obviously gained a boost from the stronger than expected employment numbers and this further eased the way for its appreciation. However it remains back from its previous highs, and a clear resolution of the concerns at Mondays Euro-group meeting would open the way for some appreciation from the beleaguered EURO. Again, any further gains by the AUD from current levels are going to be harder fought, as previous investigations proved.   
 
The current interbank midrate is:                                                            AUDEUR  .8207                    EURAUD 1.2184                                                                                       
 
The interbank range so far this week to date has been:                 AUDEUR .8090 - .8228     EURAUD 1.2153 - 1.2361