4:48 PM (NZT) The AUD saw initial pressure from the CAD at the start of this week. The pair was unable to consolidate through the parity level and over the last couple of days the AUD has outperformed following comments from the BOC about concerns on the economy.  The pair was due for some kind of AUD resurgence, given the pressure that the CAD has applied to the AUD of late. Next week there is little Australia to provide the lead, so the focus for the pair will from Thursdays release of the Canadian retail sales data. A failure of the pair to consolidate through 1.0100 will likely mean further testing to the downside support at 1.0000 at some stage soon.
 
The current interbank midrate is:                                                            AUDCAD  1.0072                                                                                         
 
The interbank range so far this week to date has been:                 AUDCAD .9977 – 1.0112

4:47 PM (NZT) Although the Australian dollar has seen some appreciation over the EUR so far this week, the pair remains very much in the recently familiar range. With the absence of material economic data in Australia next week , expect the lead to come from the wider market appetite for risk and any substantial news out of China. It is likely that this recent range will remain in place in the short term. Any worsening of the situation in Europe will likely see the AUD outperform as the expectations for further central bank stimulation increase.
 
The current interbank midrate is:                                               AUDEUR  .7785                   EURAUD  1.2845                                                                                     
 
The interbank range so far this week to date has been:   AUDEUR .7738 – .7827   EURAUD 1.2776 – 1.2923

4:33 PM (NZT) After seeing initial further pressure from the GBP, the AUD has bounced back positively against the GBP in the last couple of days. The BOE comments around the European uncertainty have driven the move. The GBP gave up substantial ground against the EURO as the prospect of further QE from the BOE increased, and this has fed through to other pairings, such as the AUD. It will be interesting to see if these gains will continue next week. There is an absence of material Australian economic data, so the lead for the pair will continue to come from offshore. Even at current levels, those looking to stagger funds transfers from the UK to Australia should feel comfortable. 
 
The current interbank midrate is:                                                            AUDGBP  .6269                   GBPAUD 1.5952                                                                                        
 
The interbank range so far this week to date has been:                AUDGBP .6179 – .6289    GBPAUD 1.5901 – 1.6184

4:32 PM (NZT) The US dollar demand has increased further this week as the global growth concerns have increased. The European crisis is providing the main drag on the growth expectations, and the uncertainty in Europe is unlikely to abate in the short term. The Australian economy was of limited impact this week, and this will continue to be a theme next week in the absence of material economic data. Should European concerns continue to escalate the prospect of the FED being forced into further quantitative easing will again rise and this would be AUD supportive over time. In the short term the momentum continues to be against the AUD, albeit further appreciation for the US dollar will likely prove to be harder fought. There has been a lack of any material bounce from the AUD in the recent move lower, and this remains a potential eventuality given that markets rarely move in one direction for a concerted period of time.
 
The current interbank midrate is:                                                            AUDUSD  .9893                                                                                         
 
The interbank range so far this week to date has been:                 AUDUSD .9866 – 1.0043

4:30 PM (NZT) The AUD has continued to place pressure on the beleaguered NZ dollar throughout this week so far. The weaker NZ retail sales and Fonterra diary auction results have helped ease the passage lower for the NZ dollar. The NZ dollar has managed to avoid consolidation through the .7700 (1.2990) level for the time being, and this is crucial for it avoiding another leg lower on this pairing. Next week there is little in the way of domestic drivers of price action in either economy, so direction will be solely demand driven. The NZD is lower across the board again this week and this should see the probability of a cash rate cut from the RBNZ next month diminish. If this happens the NZD should find support against the AUD. From the AUD perspective, any further news from on the Chinese economy will be of impact. Metals markets have found support overnight, and this will add to demand for the AUD.
 
The current interbank midrate is:                                                            NZDAUD .7721                            AUDNZD 1.2951
                                                               
The interbank range so far this week to date has been:                 NZDAUD .7683 - .7815             AUDNZD  1.2796 - 1.30.16

4:27 PM (NZT)The Canadian dollar continued its recent dominance over the NZ dollar to start the week. The NZD weakness was aided by the weaker than expected NZ retail sales and Fonterra diary auction results. Opening up the week down through the .7850 support level eased the way for the move lower. The .7700 level is now the base and provides support for the pair. Bank of Canada concerns over Europe have seen the CAD give back some of the gains over the last few sessions. .7700-.7850 will likely provide the range in the short term. A break of either end of the range is required for future direction for the pair.
 
The current interbank midrate is:                                                            NZDCAD .7781                             
                                                               
The interbank range so far this week to date has been:                 NZDCAD .7711 - .7836              

4:26 PM (NZT) The NZ dollar has seen further pressure from the EURO as the wider market risk aversion increased this week. Helping the NZD underperformance were the weak NZ retail sales numbers and Fonterra diary auctions results. The pair is now testing the crucial level of .6000 (1.6666). The external lead will continue to dominate next week, consolidation through the .6000(1.6666) opens the way for further NZD underperformance. Uncertainty will remain high in the coming weeks as the prospect of another Greek election in mid June looms. Sound advice would be stagger transfers for those with interest in this pairing.
 
The current interbank midrate is:                                                            NZDEUR .6015                               EURNZD 1.6625
                                                               
The interbank range so far this week to date has been:                 NZDEUR .5999 - .6075                EURNZD 1.6461 – 1.6669

4:25 PM (NZT) After seeing a continuation of the recent GBP dominance early in the week, the NZD has finally found some demand over the last couple of sessions. The wider market risk aversion, coupled with weak NZ retail sales numbers and Fonterra diary auction results enabled an easy passage lower for the NZD. Only BOE murmurings about heightened concerns in Europe have seen the talk of further quantitative easing from the BOE increase. The QE speculation has seen a strong reversal of the GBP strength against the EURO, and this has fed through to other pairings, such as against the beleaguered NZ dollar. Whether the break in momentum for the pair can be sustained remains to be seen, but it is likely that further GBP gains from around the .4800(2.0830) level will prove harder fought. Current levels offer good value buying of NZ dollars for those looking to stagger funds transfers into NZ dollars from GBP.
 
The current interbank midrate is:                                                            NZDGBP .4835                               GBPNZD 2.0682
                                                               
The interbank range so far this week to date has been:                 NZDGBP .4780 - .4881                GBPNZD 2.0488 – 2.0920

4:23 PM (NZT) The Japanese YEN continued its grinding appreciation over the NZD this week. The escalation of the global risk aversion being driven by the European uncertainly has enabled easy appreciation for the YEN. Assisting the move has been the disappointing NZ retail sales numbers, and again weaker Fonterra diary prices. Given the current sentiment, further gains from the YEN cannot be ruled out in the short term. The BOJ monetary policy meeting next week will provide the primary focus for the week, with officials likely to pay lip service to currency intervention to stem progress of the YEN. Current level represent good value buying of NZD with YEN with those looking to stagger transfers from YEN to NZD.
 
The current interbank midrate is:                                                            NZDYEN 60.60                              
                                                               
The interbank range so far this week to date has been:                 NZDYEN 60.43 – 62.74             

4:22 PM (NZT) The NZD has again seen sustained pressure from the US dollar this week. The concerns in Europe have driven widespread risk aversion taking its toll on the NZD demand. Compounding issues was the weak retail sales numbers in NZ on Monday, along with dramatically lower diary auction prices posted by Fonterra. So with the US dollar being a main beneficiary of the risk aversion, and softer indicators for growth in NZ, expect the pressure to remain on the NZD in the short term. Attempts to bounce (along with the AUD) have been limited so far in this move, but would not surprise at some stage. Further escalation of concerns in Europe will likely see central bank activity at some stage stablise markets and turn sentiment for the growth assets, of which the NZ dollar is one.
 
The current interbank midrate is:                                                            NZDUSD .7636  
                                                                                         
The interbank range so far this week to date has been:                 NZDUSD .7619 - .7843

12:25 PM (NZT)
The Australian Economy:
It has been a relatively quiet week for action in the Australian economy. The focus was the release of the Reserve Bank of Australia (RBA) monetary policy meeting minutes on Tuesday. These minutes reveal the impetus behind the larger than expected cut to the cash rate from the RBA. There appears to be a battle with the banks over margins. The banks are claiming that wholesale funding rates have increased to an extent where they are not able to pass on fully the cuts in the cash rate from the RBA. Ironically this comes as the same banks announce record profits. At any rate, the 50 cut has had the effect of a cut of just over 25pts, in terms of the benefit to borrowers. The global commodity prices are again weaker this week, which in turn will effect mining exports overtime. Next week sees an empty economic calendar, so expect the wider market appetite for risk, or lack of, to be the primary driver the AUD sentiment.
 
The US Economy:
The economic data in the US has been mixed again this week. This mixed performance is relatively good on a global scale , considering the weakness being seen in Europe and the UK. The retail sales numbers were slightly below expectation, and inflation was as expected and remains a non issue for policy makers currently. Further signs that the housing market has at least stablised are encouraging, and housing starts were even better than expected. The Federal Reserve (FED) monetary policy meeting minutes were as expected and remains committed to lower interest rates for 2012 and probably further. Interestingly as the global outlook has deteriorated the longer end interest rates in the US have pushed to record lows this week , on the back of the safe haven bid for US debt. This move in rates has underscored the demand for US dollars. The manufacturing numbers released overnight were very weak, and this will be closely watched in the coming weeks to ascertain the full extent of weakness in the manufacturing sector. Next week is relatively light in terms of economic data, with further housing numbers and durable goods (large ticket items) providing the primary focus.
 
The UK Economy:
It has been a relatively quiet week in the UK economy. Unemployment claim numbers were encouraging as they dropped by 13.7k when a small rise was expected. In the Bank of England’s (BOE) inflation report the central bank made a candid assessment of the state of the economy. They pointed towards unusually uncertain growth prospects, thanks to the continuing turmoil in continental Europe. If the crisis in Europe escalate, as it increasingly looks likely, further quantitative easing is not out of the question to help the UK economy survive. Next week sees the release of inflation, retail sales and revised GDP numbers for the 1^st quarter. Also being released are the BOE monetary policy meeting minutes, albeit these should not be too surprising given this week opportunity to communicate for the BOE.
 
The New Zealand Economy:
The NZ economy has undoubtedly going through a soft patch in the first quarter of 2012. Retail sales numbers released on Monday reveal a 1.5% decline in sales as the sector corrects following the growth it saw from the Rugby World cup in the second half of 2011. Adding to the clouded outlook was another disappointing result for the latest Fonterra diary auctions. Prices were lower again, this time by a whopping 6.4% in trade weighted terms. Payout projections have been appropriately lowered, and this will materially affect parts of the agricultural economy in the coming quarters. Next week is again light on economic data with just the quarterly RBNZ inflation expectations survey and the annual budget release on the cards, both of which will be of limited impact. The export sector will be very excited with the heavy nature of the NZD across the board. Of note, the expectations of an easing in the cash rate from the RBNZ have lowered this week, and further weakness from the NZD will again lower expectations.
 
The Canadian Economy:
The Canadian economy has had very little news so far this week. Comments from the Bank of Canada stated their concern over developments in Europe, and nervousness surrounding the banking sector. Later on today the monthly inflation numbers are due for release, but these will be of limited impact. Next week the focus is on Thursdays release of the retail sales numbers.
 
The Japanese Economy:
The highlight of this week has been the better than expected GDP numbers for Japan. These will be of encouragement to policy makers, as the strength was provided by the export sector. Next weeks’ Bank of Japan (BOJ) monetary policy meeting now dominates the landscape. The YEN demand has continued this week, as the uncertainty spirals in Europe. Finance officials and the BOJ will be watching developments very closely as the YEN strength will starve any growth overtime.
 
The European Economy:
The slow moving train wreck that is the European debt crisis may have actually gather speed this week. Fear of banks runs in not only Greece but Spain also have added to the tensions. Political issues are compounding financial and economic issues. Greece has another election  scheduled for June and have interim leadership in place. This next election will likely be a proxy for Euro-zone membership. On the economic front this week, the GDP numbers were better than expected thanks to activity in Germany. Inflation remains somewhat tame at 2.6%, but concerns were raised as economic sentiment numbers in Germany plunged. Manufacturing and services dominate the data focus next week, but in reality, the focus will remains on the peripheral debt markets and the liquidity of banks. Moody’s downgraded 16 banks in Spain last in the US session just to compound concerns. Somewhat immaterially Fitch have downgraded Greece to one notch above default. The ongoing viability of the Euro-zone is again being debated, expect negative sentiment to continue, and further measures from various central banks cannot be ruled out in the coming months.

3:28 PM (NZT)
Offshore markets once again succumb to escalating fears that Europe will erupt in turmoil should the Greeks exit the Euro-zone. As yet the political parties have been unable to cobble together a coalition ,and this points towards another election, and most probably  further movement against austerity measures.
 
This movement towards loosening the austerity measures is obviously against the context of all bailout agreements from the IMF and EU, and points towards an exiting of the EURO. How this plays out is really unclear, and points towards further risk aversion in the short term.
 
RBA
Meanwhile, the RBA have released the monetary policy meeting minutes. These make for interesting reading. The increased cost of bank funding came into their calculations, and therefore they had to cut more aggressively than normal to impact the lending rates in a material way. This is a not so subtle crack at the record profits being posted by Australian banks  as they increase margins.
 
At any rate, given the uncertainty in the offshore markets, and slow non-mining domestic economy, further cuts are not out of the equation. Expect further cuts to be assessed on an ongoing basis.
 
After immediately seeing softer price action, the AUD has seen demand come to the market. Whilst the momentum is still to the downside on most pairings, it will pay to be weary of “short squeezes” in both the AUD and NZ dollar markets.
 

					Past 24 hours
	Current level	Pre-RBA mins	% Chge since RBA Mins		Low	High
NZD/USD	0.7760	0.7763	-0.04%		0.7752	0.7827
AUD/USD	0.9967	0.9967	0.00%		0.9950	1.0032
NZD/AUD	0.7786	0.7790	-0.05%		0.7790	0.7808
AUD/NZD	1.2844	1.2837	0.05%		1.2807	1.2837
NZD/GBP	0.4822	0.4824	-0.04%		0.4817	0.4867
NZD/EUR	0.6049	0.6055	-0.10%		0.6029	0.6069
NZD/YEN	61.94	62.00	-0.10%		61.83	62.65
NZD/CAD	0.7780	0.7788	-0.10%		0.7777	0.7824

 

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:

·         Australian Building Approvals +7.4% vs +3.2% expected
·         Australian Retail Sales +.9% vs +.3% expected
·         Canadian Building Approvals +4.7% vs -.5% expected
·         Australian Unemployment rate 4.9% vs 5.3% expected
·         Chinese Trade Balance 18.4B vs 10.0B expected (lower import demand)
·         UK Manufacturing +.9% vs +.5% expected
·         BOE leaves monetary policy unchanged
·         Chinese inflation 3.4% as expected
·         Chinese RRR decreased by 50pts-freeing up capital for lending.
·         Canadian employment growth 58.2k vs 10.1k expected
·         US UOM Consumer Sentiment 77.8 vs 76.4 expected

Market Overview:

Risk aversion increased throughout the wider financial markets last week. The leading contributor was undoubtedly the inability of Greek politicians to cobble together some sort of leadership in order to avoid having to go to the polls again. The rapid rise of anti-austerity policy is gripping Europe across the board, but in Greece the effect is an immediate state of paralysis. The higher chances of Greece leaving the Euro-zone before the end of 2012 has far reaching ramifications, and this is why such a small country continually makes a large impact. Elsewhere the economic data remains patchy at best. Numbers in North America are holding up, but the deep slow down in Europe is impacting Asia. Over the weekend Chinese authorities cut the reserve ratios of their banks in an attempt to boost slowing growth.

Australia

Following the previous week’s larger than expected cut to the cash rate, the economic data in Australia last week was ironically, stronger than expected. Building approval and retail sales numbers started the week, both significantly higher than projections. But the real surprise came in the form of a 4.9% unemployment rate against an expectation of a 5.3% rate. However, this 4.9% headline number was stronger than the detail suggested, with a fall in full time jobs growth and a lower participation rate. The Federal Budget offered few surprises, and was of little material impact to the overall balance of the economy. This week sees the minutes from the previous Reserve Bank of Australia monetary policy meeting released on Tuesday. Given the larger than expected move, these will be closely followed, and provide the domestic focus for the week. Of note has also been the soft indicators coming out of the Chinese economy. Over the weekend the lowering of the reserve requirements for banks, will potentially provide a lending boost for Chinese business, and this should be of benefit to Australian exporters overtime.

New Zealand

There was little in the way of domestic economic news in New Zealand last week. The Real Estate Institute of NZ monthly numbers showed a slight pull back in house prices compared to the previous month. The interest rate market has seen plenty action over the last couple of weeks. Strange price action pushed expectations of a Reserve Bank of NZ cut to the cash rate at the next meeting in June to 80% priced. Given the demonstrably lower level of the NZD over the last month, a cut to the already low cash rate of 2.50% would be very unlikely. As the interest rate market corrects itself, the outcome should be somewhat NZ dollar supportive. Today’s release of the quarterly retail sales numbers showed a marked decline of -1.5% from the last quarter of 2011. This can be best explained away as a correction after the dramatic boost to retail spending over the Rugby World Cup. Producer prices will also be reported on Thursday, but will be of little impact to overall sentiment.

United States

The US economy had a relatively quiet economic data calendar last week. The latest Government bond auction was very well received and that was of little surprise given the strong risk aversion evident in markets of late. Weekly jobless claims numbers returned to more positive levels after a recent move back up towards problematic levels. Interestingly the consumer sentiment numbers came out stronger than expected. This is positive and correlates to the recent pick up in the residential housing market. This week is a busy one for economic data and central bank releases. Inflation and retail sales numbers come on Wednesday and will be closely watched. Thursday sees the release of the latest monetary policy meeting minutes from the Federal Reserve (FED). Friday rounds out the week with the important manufacturing numbers from the Philadelphia Federal Reserve.

Europe

The inability of Greek politicians to pull together a coalition is proving stressful for investors in Europe. Confidence is low and the Europe wide push back against adopted austerity measures signals further unrest to come. Apart from the prospect of another round of Greek elections, Spanish provisions to bail out its banks are also topical, as are the changing political landscapes in both France and Germany. This week sees the release of both inflation and GDP numbers. GDP numbers are expected to confirm that Europe is back in recession, being the second consecutive quarter of negative economic growth.  

United Kingdom

Last week’s UK economic indicators were mixed. House price and retail sales point towards a continuing lethargy in the economy. A bright spot was better than expected monthly manufacturing numbers. Longer end interest rates in the UK are lower on the back of capital flows out of Europe, and this is a positive for borrowers in the UK. As expected the Bank of England (BOE) left monetary policy unchanged last week. Wednesday is the focus this week, with employment numbers and the BOE Inflation Report taking center stage.

Japan

Last week was a quiet one for Japanese economic indicators. Trade balance numbers were the focus and these revealed higher than expected export numbers, which was positive. Further jawboning from various Japanese finance officials with regards to the strength of the YEN provided a little colour to what was a week of mainly external focus.  This week sees the focus mainly on the GDP number on Thursday. A recovery from the negative growth of the last quarter of 2011 is expected to provide a +.9% result for Q1 2012.

Canada

Last week proved to be another relatively positive one for the Canadian economy.  Building numbers early in the week surprised with their strength and these were backed up by another strong employment number on Friday. Employment growth was over 58,000 against an expectation of around 10,000. This week is a little quiet, with the market having to wait until Friday for the week’s primary focus, in the form of the monthly inflation numbers.

5:35 PM (NZT) This pair has had an interesting week and is hovering around interesting support levels. Consolidation through the 80.00 support level is needed for another wave of AUD weakness to ensue. Japanese GDP and the RBA minutes will dominate the focus for the pair next week. Expect the Japanese authorities to continue to warn about YEN strength, and this should provide some level of support to this pair. If fears again increase in Europe the YEN will again see strong demand and the 80.00 level will be probed again.
 
The current interbank midrate is:                                                            AUDYEN   80.42                            
                                                               
The interbank range so far this week to date has been:                 AUDYEN 79.68 – 81.70              

5:33 PM (NZT) The AUD remains under pressure relative to recent history against the CAD. Yesterdays stronger than expected Australian employment numbers did manage to boost the AUD from its lows, but it remains weaker than where it started the week. In the current wider global environment, expect the CAD to maintain the current pressure on the AUD.  The recent Chinese data is not helping the fortunes of the AUD with persistently high inflation and lower demand for imports. The Australian RBA monetary policy meeting minutes on Tuesday and Canadian inflation numbers Friday will provide the data focus next week for this pair.
 
The current interbank midrate is:                                                            AUDCAD  1.0102                                                                                         
 
The interbank range so far this week to date has been:                 AUDCAD 1.0048 – 1.0160