5:32 PM (NZT) This week has seen sideways trading within a relatively contained range for this pairing. Obviously news has not been good in Europe, but this sentiment feeds directly through to demand for AUD, seen as the proxy for global growth. The employment numbers in Australia yesterday did provide a temporary boost for the AUD, but those gains have all but evaporated now.   Expect more of the same next week for the most part. European GDP numbers will be closely watched, as will the RBA monetary policy meeting minutes.
 
The current interbank midrate is:                                               AUEUR  .7785                    EURAUD  1.2845                                                                                     
 
The interbank range so far this week to date has been:   AUDEUR .7745 – .7826   EURAUD 1.2778 – 1.2912

5:30 PM (NZT) The GBP appreciation over the AUD has slowed in it momentum this week. This saw a relatively contained range play out for the pairing. The AUD did see pressure early in the week following the French and Greek election results, but rebounded yesterday following the stronger than expected employment results. However the lack of further monetary policy stimulation from the BOE saw GBP increase again in the offshore session negating much of yesterday’s gains for the AUD. Next week the focus will be on the RBA meeting minutes in Australia.
 
The current interbank midrate is:                                                            AUDGBP  .6240                                                                                         
 
The interbank range so far this week to date has been:                 AUDGBP .6217 – .6301

5:29 PM (NZT) The recent volatile nature continued this week, albeit within a contained range.  AS the global oil price stablised the USD appreciation lost its momentum. The stronger than expected Australian employment number yesterday, gave the AUD a decent, but somewhat brief boost in sentiment. The Chinese data has not helped the AUD this week, with lower import demand and persistently higher than expected inflation. The psychological large 1.0000 level (or just above at 1.0020) looms at support on any AUD weakness. In the current environment, it is hard to see any sustained period of AUD strength eventuating in the short term. The RBA monetary policy meeting minutes loom large next week on Tuesday.
 
The current interbank midrate is:                                                            AUDUSD  1.0065                                                                                         
 
The interbank range so far this week to date has been:                 AUDUSD 1.0017 – 1.0222

5:28 PM (NZT) It has been an interesting week again for this pair. Early on, the NZD saw pressure as the NZ interest rate markets pushed yields to extremely lows levels, undermining demand for NZ dollars. The subsequent partial recovery in the rates market, has seen the NZD stablise and start to edge back up against the AUD. The AUD was buoyed by yesterday’s strong headline employment number, albeit its gains short lived. Ironically the headline strength was not backed up by the underlying detail, the opposite of the NZ employment report last week. For further NZD appreciation the .7830 (1.2770) level remains the initial target. It would surprise to see further downward pressure on the NZD from the current levels in the short term. The Chinese data of higher than expected inflation and lower demand for imports are seen as slight negatives for the AUD.
 
The current interbank midrate is:                                                            NZDAUD .7792                            AUDNZD 1.2834
                                                               
The interbank range so far this week to date has been:                 NZDAUD .7767 - .7827             AUDNZD  1.2762 - 1.2875

5:23 PM (NZT) The NZD has again been under pressure from the YEN this week. The NZD has managed to stablise finally , after what has been a dramatic fall over the last couple of weeks. The lip service about the broad strength of the YEN from Japanese officials may have helped stablise the pair. If the NZ interest rate market can  further correct from this week’s debacle, the NZD should find further support. But he lead will undoubtedly come from the wider market risk appetite in the short term, predominantly driven by how things play out in Europe.
 
The current interbank midrate is:                                                            NZDYEN 62.60                              
                                                               
The interbank range so far this week to date has been:                 NZDYEN 62.14 – 63.71              

5:22 PM (NZT) The NZD has remained under pressure from the CAD throughout the course of this week. The lowering oil price cushioned the NZD fall, until it stablised. The pair remains vulnerable to further NZD weakness as the pair is again close to the support level at .7850, consolidation through here would open up the way for a move back towards more historically average levels. The wider market risk appetite will provide the lead next week, with limited scope for NZD appreciation in the current environment.
 
The current interbank midrate is:                                                            NZDCAD .7863                              
                                                               
The interbank range so far this week to date has been:                 NZDCAD .7840 - .7937              

5:21 PM (NZT) This pairing has been about the battle of the weakening currencies throughout the course of this week. With both currencies under pressure the range has been relatively small. Given the ground the NZD has lost over the previous few weeks, current level offer reasonably good value buying of EURO. Should the NZ interest rate market correct further in the coming week back towards a stable cash rate, the NZD should find some natural support, with .6100 (1.6400) presenting the first hurdle for NZD appreciation. The .6000 (1.6667) level remains the key should any further NZD weakness eventuate. The economic data is somewhat secondary to the financial and political news in the short term.
 
The current interbank midrate is:                                                            NZDEUR .6064                              EURNZD 1.6491
                                                               
The interbank range so far this week to date has been:                 NZDEUR .6040 - .6108                EURNZD 1.6372 – 1.6556

5:20 PM (NZT)
The NZD has again seen a grinding pressure from the recently resurgent Pound Sterling this week. The .4850 (2.0619) presents its self as the a reasonable NZD support level, albeit the current price very close to it. The NZD was dragged higher yesterday on the back of the better than expected Australian employment numbers, but the gains proved unsustainable. The unchanged monetary decision from the BOE has also provided further support for the GBP. Further gains from the current levels should prove to be harder fought for the GBP. Any material improvement in global sentiment would see the NZ dollar outperform. The GBP will see further capital flows from Europe should negative EURO sentiment again increase, and this will support the GBP across the board. For those looking to transfer from GBP to NZD, current levels represent good value from the recent historical perspective.
 
 The current interbank midrate is:                                                            NZDGBP .4860                               GBPNZD 2.0576
                                                               
The interbank range so far this week to date has been:                 NZDGBP .4848 - .927                GBPNZD 2.0296 – 2.0627

 

5:19 PM (NZT) The NZD has been under pressure from the US dollar throughout most of this week. The stablisation of the oil price helped stem further gains for the US dollar. Support remains at .7800 for the time being, but any material return to risk aversion will see this level tested. With the concerns in Europe, the upside for the NZD seems limited for the time being. The better than expected Australian employment numbers yesterday gave the NZD a brief reprieve, but the gains proved unsustainable. Again the bulk of the lead will come from the wider market appetite for risk next week. If the NZ interest rate market can continue its move back to more sustainable higher yields, the NZD will take some level of support from this.
 
The current interbank midrate is:                                                            NZDUSD .7844  
                                                                                         
The interbank range so far this week to date has been:                 NZDUSD .7809 - .7976
 

4:35 PM (NZT)
The Australian Economy:
It has been an interesting week for the Australian economy. After last week’s larger than expected cut to the cash rate from the RBA, economic indicators have been better than expected. Building approvals, retail sales and yesterday’s employment numbers were all buoyant. The unemployment rate dropping back to 4.9% is a strong headline number, albeit the detail was not so sturdy. Of the jobs growth on the month, added part time jobs of 26k countered for a 10.5k fall in full time employment. Importantly the participation rate fell, easing the way for the reduced unemployment rate. The Chinese trade balance indicated lower demand for imports, and that is a negative sign for Australian exporters. Today’s Chinese inflation numbers showed al level if 3.4% vs an expectation of 3.3% and a previous of 3.6%. A lower than expected number would be AUD positive. Next week’s focus will be the release of the RBA monetary policy meeting minutes, from last weeks meeting. Given the surprise magnitude of the cash rate cut, these minutes will be closely followed.
 
The US Economy:
A relatively quiet week for economic data in the US. The April Federal Budget surplus of 59.1B was the largest since April 2008, and is encouraging. US interest rates have pushed down to low levels, as demand for the safety of interest rate bearing bank investments has increased, in response to escalating fears about the situation in Europe. Next week sees inflation, retail sales, construction and manufacturing numbers all released. Closely followed will also be the FED’s monetary policy meeting minutes on Wednesday. The lower oil price has been USD supportive over the last couple of weeks, but the downward momentum has eased considerably, stablising the FX ranges as a result.
 
The UK Economy:
Housing numbers still indicate a sector under pressure in the UK. Manufacturing numbers yesterday were stronger than expected and are somewhat encouraging. The focus for the week has been the Bank of England (BOE) monetary policy decision yesterday. The BOE left monetary policy unchanged and the market awaits the meeting minutes in two weeks for further insight to the current feeling of the board. The European situation has the potential to rapidly alter outlooks, so these will be closely watched. The latest inflation numbers are due next week, and these will be closely watched.
 
The New Zealand Economy:
There has been little in the way of economic data released in New Zealand this week. Of influence has been the somewhat strange goings on in the interest rate markets. Over the last week, a perfect storm of a global move lower in interest rates, the RBA cutting their cash rate by 50pts, and last week’s jump in the unemployment rate, has seen unusual price action in the NZ interest rate market. Early in the week, the market had moved to price an 80% chance of a cut in the cash rate from the RBNZ. This move was driven by wholesale investors scrambling to cover positions and a very illiquid market. It is highly unlikely the RBNZ would consider cutting the cash rate, with the value of the NZD having moved over 4% lower, on a trade weighted basis, in the past month. The European situation would have to escalate to new levels, to open up that scenario, and it would be driven by a freezing of credit markets offshore. Next week’s focus will be on the retail sales number for the first quarter due Monday. Fonterra bi-monthly diary auction results will also be closely watched.
 
The Canadian Economy:
There has been relatively little focus on the Canadian economy so far this week. The oil price stabilising after its recent weakness will be supportive of the oil exporting regions. Volatile building numbers were demonstrably better than expected on Monday. Later on today employment numbers get released and these provide the real focus for the week. Next week along with second tier wholesale sales and manufacturing numbers, Friday’s inflation numbers will provide the focus.
 
The Japanese Economy:
In Japan this week the trade balance data pointed towards improved levels of exports which is encouraging. As expected various finance officials have been playing lip service to the strong nature of the YEN, but given the wider market risk aversion evident for most of the week, any action would be fool hardy at this time. Next week the preliminary first quarter GDP numbers on Thursday provide the focus.
 
The European Economy:
In Europe this week the weaker economic data has coupled itself with increased political uncertainty to escalate fears about the ongoing viability of the single currency. Anti-austerity slogans have seen the rise in popularity of left wing parties in Greece. There is little chance of the coalition being cobbled together and another election is likely at some stage soon. Concerns about the ability of the Spanish to reduce deficits further clouds the outlook in Europe. Tensions around the austerity drive and a lack of growth point towards a bumpy road for Europe over the medium to long term. Next week sees GDP numbers released and no doubt these will make dismal reading for the most part.
 
Of note :
For the most part this week has been about risk aversion. The escalation of uncertainty in Europe on both economic and political levels, are directly driving the risk aversion. With the likes of the Chinese Investment Corporation publically standing back from any new investment in European debt, the feeling is one of coming to a turning point. The transition of power in France is a focus. Across Europe there is populace movement away from austerity measures, that are at the heart of core member Germany’s leadership.  It is hard to see any material recovery in risk appetite in the short term, given the current sentiment.
 
 

5:57 PM (NZT) 4:15 PM (NZT)

Currency Commentaries:

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
NZD/EUR (EUR/NZD)

Major Announcements last week:

·          NBNZ Business Confidence 35.8 vs 33.8 previous
·          Canadian GDP (month) -.2% vs +.2% expected
·          Chinese Manufacturing 53.3 vs 53.6 expected
·          RBA cut the cash rate from 4.25% to 3.75%
·          UK Manufacturing 50.5 vs 51.4 expected
·          US Manufacturing 54.8 vs 53.0 expected
·          UK Construction 55.8 vs 54.1 expected
·          NZ Unemployment rate 6.7% vs 6.3% expected(but participation higher)
·          UK Services PMI 53.3 vs 54.4 expected
·          ECB leaves monetary policy unchanged
·          US Unemployment rate 8.1% vs 8.2% expected(but participation lower)
·          Canadian Manufacturing 52.7 vs 62.6 expected

Market Overview:

Foreign exchange markets finally broke out of their recent sideways trading range last week. Increased uncertainty stemming from various political and economic forces have driven the moves. Risk aversion has increased as economic indicators again point towards lower than previously forecast growth in Europe, the US and Australasia. Elections in France and Greece have increased the risk aversion. Adding to the mix a sharp correction in the oil price, and the way has opened for a materially stronger US dollar, and Japanese YEN.
 
In Australia the Reserve Bank (RBA) surprised the market with the larger than expected 50 point reduction in the cash rate to 3.75%. The move may have been a result of the RBA not wanting to  change the cash rate at its next meeting, following the Federal Budget, so there may have been an element of “front loading”, to last week’s reduction. But they were clear on their reasons for easing monetary conditions. A benign inflationary environment and weaker than expected domestic activity provided the environment for the decisive cut. Following today’s relatively buoyant retail sales and building approvals numbers, the remainder of the week’s sees the focus on Thursdays employment numbers. A higher than expected unemployment rate would see further pressure on recently maligned Australian dollar.
 
In New Zealand last week’s higher than expected unemployment rate increased pressure on the already fragile New Zealand dollar. The NZD saw selling pressure across the board, and it was a strangely weak performance. The downward trend of the Fonterra Diary auction prices will not be helping investor sentiment. This week will see the lead mainly come from offshore, and the wider market appetite (or lack thereof), for risk. The Reserve Bank of New Zealand (RBNZ) Financial Stability Report will be followed but should not be of material impact to the price action this week.
 
The US dollar saw good demand across the board last week, apart from against the Japanese Yen. The numbers were again mixed heading into the all important employment report on Friday. Manufacturing numbers were stronger than expected, whilst services data lagged. A weaker crude oil price was certainly US dollar supportive, as a lower oil price directly impacts on productivity and personal spending habits in the US. The employment numbers were a mixed bag at best, with the participation rate (number of people engaged in the labour market) at the lowest level since 1981. This indicates people have simply given up looking for employment. The low participation rate makes the unemployment rate naturally fall, and this caused the unemployment rate to come in at 8.1%. This week FED Chairman Bernanke speaks Thursday, and consumer sentiment numbers on Friday will garner most attention. The oil price will also be a factor, with lower oil pricing supporting the US dollar.
 
In Europe the debt crisis is currently getting a political injection. French President Sarkozy has lost his bid to remain in charge, with Socialist Leader Hollande winning a tight election battle. In Greece the pro-bailout parties saw higher than expected pressure in the polls. No party achieved a majority and now the negotiations start. The rise of anti-bailout party Syriza into second place in the polls questions how long Greece will remain in the Euro-zone. The back lash of voters across Europe makes the drive for austerity harder as well as adding to the uncertainty. Pressure builds on the ECB to become more active in trying to stimulate growth. The EURO has seen a dramatic fall in demand following the two election results. This week will see further focus on the ECB as ECB President Draghi speaks, and the ECB release their monthly report on Thursday.
 
In the UK last week mixed economic indicators were seen. Manufacturing and services sectors slightly underperformed market expectations, whilst the construction sectors saw better than expected growth. This week sees the focus return to monetary policy and the Bank of England (BOE). Interestingly, Citibank released a note to investors late last week calling for 50-75 billion of further quantitative easing from the BOE at this week’s meeting. The probability of extra stimulation is not high, but given the rapidly changing environment, nothing would surprise. The GBP has remained in demand on most pairings, but did give up ground to the resurgent US dollar.
 
In Japan tension will again be rising at the Bank of Japan. Global risk aversion has again seen demand for YEN increase. This has been added to in the last few sessions by a dramatically lower oil price. Lower oil prices naturally support YEN. The focus for the week coming will be the current account on Thursday.
 
Weaker than expected monthly GDP numbers were shrugged off by the Canadian dollar for the most part last week. Manufacturing numbers on Friday also underperformed, but given the volatile nature of that data, they also were of limited impact. The fact that the Bank of Canada have openly talk of hiking the cash rate, has provided strong demand for CAD in recent times. The focus this week is undoubtedly the employment numbers on Friday, with an unemployment rate of 7.3% expected in the report.

6:42 PM (NZT)
The Australian Economy:
This week has all been about the Reserve Bank of Australia. As their Tuesday interest rate decision approached, the market had fully priced in a 25pt cut to the cash rate, with a 30% chance of a 50pt cut. The RBA surprised with a 50pt reduction, to 3.75%, sighting lower growth and benign inflationary conditions as easing the way for the lower cash rate. There was immediate reaction from the interest rate market, but the follow through in the foreign exchange market has been less committed. One point of note is the next Federal Budget is due on Tuesday next week, and historically the RBA do not make changes just after the Federal Budget, so it may have been a case of front loading a second 25 pt cut, by delivering it this time around. This would explain the “surprise “ move, to some extent. Todays RBA quarterly Monetary Policy Statement reiterates recent points. GDP expectations for 2012 and 2013 reduced from 3.25% to 3.0%, benign inflationary pressure and employment growth. The European debt crisis remains the most significant external threat and Chinese growth has slowed as expected. Next week we have building numbers and retail sales on Monday, and the important employment  data on Thursday.
 
The US Economy:
The mixed picture of a struggling recovery continues in the US economy this week. Better than expected manufacturing numbers were balanced by weaker services data. Weaker private employment numbers were balanced by a drop in weekly jobless claims numbers. The big event awaits us later tonight, in the form of the official employment numbers. The labour market is crucial to renewed consumer sentiment in the US, so near term direction will likely be driven by this result. Next week sees a relatively quiet US calendar with consumer sentiment numbers on Friday the focus for the week.
 
The UK Economy:
In a relatively quiet week we have seen a mixture of results for the second tier data released. Weaker than expected manufacturing and services numbers were partially balanced by stronger construction data. Next week the Bank of England is back in the focus, although no change in monetary policy, and therefore no comment, are expected at their meeting. GBP continues to consolidate its recent strength, with the lowered probability of further quantitative easing, as inflation pressure has increased.
 
The New Zealand Economy:
It has been a somewhat strange week in the NZ financial markets. The data focus came in the form of the first quarter employment numbers. The headline unemployment rate rise from 6.3% to 6.7% shook the market, but the detail is actually stronger than the headline suggests. The NZD has seen strong selling pressure throughout the week, and certainly the employment numbers did not help. Interestingly the interest rate market has seen evidence of stop loss exiting of positions. This has seen the market pushed to the extreme of starting to price in an interest rate easing from the RBNZ. This is very unlikely, especially in the face of a demonstrably weaker NZD, and points towards some kind of correction in both markets, with both interest rates and the currency potentially paring losses. Again softer diary prices at Fonterra’s bi-monthly diary trade auction will also have affected sentiment. Next week sees a limited data focus in NZ.
 
The Canadian Economy:
The monthly Canadian GDP was disappointing at -.2% vs the expectation of +.2%. Bank of Canada Governor Carney pointed towards rate hikes when appropriate and this will underpin CAD support in the coming months. Later on today manufacturing numbers are released and these are the final focus for the week. Next Friday offers the primary focus for next week, in the form of the employment numbers. Before that come the secondary building numbers on Monday, and trade balance on Thursday.
 
The Japanese Economy:
A relatively quiet week for economic data. Average cash earnings numbers on Wednesday were stronger than expected, but were of limited impact. Next week is again quiet with just BOJ monetary policy meeting minutes for release on Monday and current account data on Thursday. The weaker global equity markets have ensured that YEN remain in demand across the board, which places further pressure on Japanese exporters, and authorities at the BOJ.
 
The European Economy:
European employment numbers reached a record level of unemployed this week. The weakness is across the board, including powerhouse Germany. The ECB monetary policy meeting was the focus for the week, albeit the likelihood was for no change. The no change decision saw limited reaction in the short term, but various comments from ECB officials leave the way open for monetary policy easing in the future. Credit downgrades remain a threat across Europe, and will continue to be so as Greece heads into elections. Retail sales numbers are due later today and round out this week. Next week is relatively quiet on the economic data front, with the ECB monthly bulletin, the likely highlight.
 

6:41 PM (NZT) The AUD has seen considerable pressure from the CAD this week following the surprise 50pt to the cash rate from the RBA. The pair found support on its brief move to the 1.0100 level and the 1.0200 level is the initial target to the upside for the AUD. Next week  both economies have the release of their respective employment numbers and will offer crucial insight. Expect both releases to be closely watched and appropriate reaction from any release markedly away from expectations.  
 
The current interbank midrate is:                                                            AUDCAD  1.0144                                                                                         
 
The interbank range so far this week to date has been:                 AUDCAD 1.0105 – 1.0302

6:39 PM (NZT) This pair has had a relatively volatile week as it has washed around within its now familiar recent range.  The AUD saw considerable pressure following the surprise 50pt cut from the RBA, but it subsequently saw demand increase again, before again seeing pressure overnight. The .7770 (1.2870) level represent the first AUD support level for any further EUROI demand, but expect further gains for the EURO to be hard fought in the current environment. The Australian employment numbers offer the primary data focus next week.
 
The current interbank midrate is:                                               AUEUR  .7803                    EURAUD  1.2816                                                                                     
 
The interbank range so far this week to date has been:   AUDEUR .7768 – .7904   EURAUD 1.2652 – 1.2873