Weekly FX Update - 2nd April 2012
Monday 2 April 2012, 5:31PM
By Direct FX
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By Sam Coxhead of www.directfx.co.nz
Market Overview:
Global markets saw further range trading for the most part last week. There has been positive moves in Europe, to put firewall measures in place, to ensure funding for members that see their access to debt markets compromised. Equity markets rounded out a very positive first quarter to 2012. The S&P index set all time highs before retreating later in the week. In line with these positive moves, risk currencies saw demand initially before succumbing to risk aversion. The US dollar fought to maintain momentum as US FED Chairman Ben Bernanke did his best to temper sentiment. After the recently weaker news from China, yesterday saw their official manufacturing results released, and these were stronger than expected. This number shows resilience from the sector. This has seen sentiment start the new quarter on a positive note.
Tomorrow’s Reserve Bank of Australia (RBA) monetary policy meeting will be very closely watched. In the absence of any top tier economic data last week, the interest rate market gathered momentum and pushed forward expectations of a cut to the cash rate from the RBA. With a reduction in the cash rate to 4.00% now fully priced by their meeting in June, the market has moved to price in more than a 50% chance of a cut tomorrow. This is up from a 15 to 20% chance, at the beginning of last week. The Chinese manufacturing number has tempered that somewhat, but the fact remains the cash rate is very much likely to be lower in the next six weeks. Adding further flavor in Australia we have building approvals, retail sales numbers and the trade balance also this week, but undoubtedly the main focal event is the RBA.
There has been a particularly quiet economic calendar in New Zealand of late. This continues this week. The NBNZ Business Confidence survey was the main source of excitement last week with its consolidation of the previous bounce in sentiment, following the global growth fears towards the end of 2011. The RBA rate announcement will be closely followed by those with NZD interests. Last week as the Australian market increased the chances of a cut from the RBA, the NZ dollar finally broke through to higher levels against the AUD. It has been a good run for New Zealand exporters to Australia, but with the contracting interest rate differentials, the NZD is destined to outperform in the coming months.
In the US the news remains positive for the most part. The global economy really needs a strong US performance in the coming months, and it is going to be interesting to see if this pans out. Crucial to improvements will be progress in the labour market, and this coming Friday’s employment numbers will provide the latest insight. In a typically busy week in the US, we have manufacturing and services numbers due. Along with the minutes from the latest FED monetary policy meeting on Tuesday. Longer term US interest rates gave up some of their recent gains last week, but certainly pushed higher over the quarter. Rhetoric from the FED chairman keeps the prospect of further quantitative easing real, but we will likely have to see a deterioration in the numbers before this is bought into action, in whatever form it may take.
Progress is Europe was reasonably slow going last week. With debt concerns tamed for the time being, the EU summit produced the expected results of a substantial amount of funds for its debt firewall. This week sees the European Central Bank make its scheduled monetary policy announcement. The result will almost certainly see no change in monetary policy, the accompanying statement will be closely watched as usual. The closely watched debt markets will continue to garner attention. With measures such as Spain’s budgetary announcement that it would cut up to 17% of its ministerial spending to become more common place. These types of steps are necessary but materially damage growth prospects. Evidence of this is another paring of 2012 growth expectation’s, this time from the Bank of Portugal from -3.1% to -3.4%.
In the UK the relatively light economic data calendar proved to be beneficial for the Pound Sterling. It performed relatively well, throughout last week, amid further rumours of M&A activity providing substantial demand. The final release of GDP numbers saw a downward revision from -.2% to -.3%, but this was of limited impact. This week sees a return to activity for the economic data, with manufacturing, housing, construction and services numbers due for releases. The Bank of England make their scheduled monetary policy decision on Thursday, and this expected to leave both the cash rate, and quantitative easing levels unchanged.
The news for the Japanese economy continues to show patchy form. Stronger than expected retail sales numbers were encouraging last week. Today saw the release of the official “Tankan” manufacturing survey results and the reading was weaker than expected. As expected the YEN saw periods of reasonable demand heading into the end of March last week. With that corporate balance date out of the way, possibly we may see a return to a weakening YEN trend. This would be welcomed by the Japanese export sector. There are persistent rumours of further efforts to weaken the YEN to come from the Japanese authorities, adding further weight to the YEN weakening bias in the short term.
In Canada last week the focus was Fridays as expected +.1% GDP number. The annual budget produced little of surprise, housing numbers rose a little more than expected. The easing oil price is not supportive for the CAD, and further progress on the release of strategic oil reserves from the US, UK and France, has chipped away at sentiment. Employment and manufacturing numbers on Thursday are the main focus of this week.
Major Announcements last week:
• US Pending Home Sales -.5% vs 1.0% expected
• US Durable Goods Sales +1.6% vs +1.6% expected
• EU German Business Climate Index 109.8 vs 109.7 expected
• US Consumer Sentiment 70.2 vs 70.3 expected
• UK Final GDP revised -.3% from -.2% previous
• NZ NBNZ Business Confidence 33.8.0 vs 28.0 previous
• US GDP final reading 3.0% as expected
• CAD GDP +.1% vs +.1% expected
• EU Summit agrees 700 billion EURO firewall
• US Chicago Manufacturing PMI 62.2 vs 63.2 expected
NZD/USD
This pairing continues to trade in its recently familiar range, and to be led by the wider market appetite for risk. Much of this week’s form will be dictated to by how the global equity markets start the 2nd quarter, after such a good run in the first three months of the year. The initial data focus comes from the US manufacturing number late Monday, but the primary focus will be on the all important US employment numbers on Friday. There is no significant NZ economic data this week.
Current level Support Resistance Last week’s range
NZD/USD .8201 .8100 .8300 .8112 - .8264
NZD/AUD (AUD/NZD)
The NZD finally broke through crucial topside levels last week. In somewhat surprising activity considering the lack of economic data to stimulate the move, the Australian cash rate expectations drove the move. Whatever the decision on Tuesday from the RBA, the cash rate will almost definitely be lower by the June meeting. Expect the .8000 level (1.2500) to cap any topside moves should the RBA cut rates tomorrow. Today’s Australian building approvals number was -7.8%, weaker than expectation, but this has proven to be a volatile series over time. There is no top level NZ economic data due in what otherwise will be a very interesting week for this pairing.
Current level Support Resistance Last week’s range
NZD/AUD .7885 .7700 .7830 .7723 - .7811
AUD/NZD 1.2682 1.2770 1.2990 1.2802 - 1.2948
NZD/GBP (GBP/NZD)
This pair traded within a very contained range throughout the duration of last week. There was little significant economic data in either economy, but the GBP held subtle pressure over the NZ dollar. This week again sees a distinct lack of focus on the NZ dollar, but the data flow improves in the UK. There are manufacturing, housing, construction, and services numbers throughout the week to accompany the most likely unchanged Bank of England monetary policy decision on Thursday.
Current level Support Resistance Last week’s range
NZD/GBP .5126 .5000 .5200 .5103 - .5166
GBP/NZD 1.9508 1.9231 2.0000 1.9357 - 1.9596
NZD/CAD
The NZD outperformed the Canadian dollar by a slim margin last week. The lower oil pricing was mostly the contributing factor in a week of limited economic data supply in either economy. The as expected Canadian GDP number on Friday was of limited impact, but the better than expected Chinese manufacturing number did aid the NZD to highs at the weeks open. This week again sees limited economic data due for release in NZ. The Canadian influence comes on Thursday, with the release of building, manufacturing and employment numbers.
Current level Support Resistance Last week’s range
NZD/CAD .8170 .8050 .8250 .8116 - .8209
NZD/EURO (EURO/NZD)
This pair had a subdued last week as the EURO was not able to maintain its recent momentum. Support close by at .6100 (1.6400 resistance) is the initial target for the pair. Consolidation through this level would open up the way for further investigations back closer towards more historically average levels. This week again sees a lack of economic data in New Zealand. In Europe the primary focus will be on conditions in debt markets, as the ECB will no doubt leave monetary policy unchanged at their announcement on Wednesday.
Current level Support Resistance Last week’s range
NZD/EURO .6143 .6100 .6300 .6115 - .6182
EURO/NZD 1.5279 1.5875 1.6400 1.6176 - 1.6353
NZD/YEN
This pairing was volatile within its range throughout last week. This is a good indication of the state of the wider financial markets. Any risk aversion sees the YEN outperform, whilst in times of risk appetite, the NZ dollar will take the upper hand. The NZD dollar has started the week strongly on the back of the better than expected Chinese manufacturing numbers released over the weekend. In Japan the release of the ”Tankan” surveys saw weaker than expected results in the manufacturing sector. The Japanese economy remains under pressure for the most part, and the rumours of further stimulation from monetary authorities is unsurprising. With the end of financial year out of the way now, the next few weeks will be interesting. Without action from Japanese authorities, expect the lead to come almost singularly from the stock markets.
Current level Support Resistance Last week’s range
NZD/YEN 68.03 66.50 68.50 66.55 - 68.55
AUD/USD
The Australian dollar saw some solid pressure at times from the US dollar last week. This week’s RBA meeting came into play as the interest rate market increased the chances of a 25pt cut to the cash rate at tomorrow’s meeting. While they may not cut tomorrow, it’s highly likely that we will have a 4.00% cash rate, or lower, by the June meeting. The release of the better than expected official Chinese manufacturing data over the weekend has seen the AUD start the week stronger. However since the disappointing building numbers and initial profit taking, the AUD has given up a good portion of its gains. There is some significant data to be released in the US this week also, so we can expected some action. The employment numbers on Friday will be of primary importance. If the stock markets can hold onto gains seen in the first quarter, it will assist the AUD hold ground in the face of a lowering cash rate from the RBA.
Current level Support Resistance Last week’s range
AUD/USD 1.0399 1.0300 1.0500 1.0301 - 1.0558
AUD/GBP (GBP/AUD)
The Pound Sterling continued it recent outperformance of the Australian dollar last week. Aiding further weakness for the AUD was the move by the interest rate market to increases the odds of an RBA cut to the cash rate at tomorrow’s meeting. Whilst this seems unlikely, the fact remains that we will almost certainly have a lower cash rate from the RBA in just six weeks time. Contracting cash rate differentials point towards continued pressure on the AUD. The Bank of England also have a make a monetary policy announcement on Friday, with the decision likely to be unchanged.
Current level Support Resistance Last week’s range
AUD/GBP .6502 .6450 .6650 .6452 - .6621
GBP/AUD 1.5380 1.5030 1.5500 1.5103 - 1.5499
AUD/EURO (EURO/AUD)
The EURO continued it outperformance of the AUD throughout the course of last week. The increasing outlook for a cut to the cash rate from the RBA has aided the move back towards more historically average levels. The better than expected Chinese manufacturing data released over the weekend did give the AUD a boost to start this week, but it has reversed a portion of its gains since then thanks to some weak building numbers in Australia. Tomorrows RBA decision is the initial focus, but we also have a monetary policy decision from the European Central Bank on Wednesday. Expect an unchanged decision, but their statement will be closely followed as usual. Expect further progress from the EUR over the AUD to be harder fought from current levels, as the easy ground has been taken back already. A less downbeat assessment than expected from the RBA tomorrow, as unlikely as it maybe, would prompt some appreciation from the AUD.
Current level Support Resistance Last week’s range
AUD/EURO .7793 .7650 .7850 .7744 - .7919
EURO/AUD 1.2832 1.2740 1.3070 1.2627 - 1.2913
AUD/YEN
This pair has seen mixed fortunes throughout the last week. The AUD started the week with the upper hand as the stock markets initially rallied. But once the stock markets turned around and the chances of a cut to the cash rate this week from the RBA increased, the YEN saw some solid demand. The better than expected Chinese manufacturing numbers released over the weekend saw the AUD gap higher against the YEN to start this week. From here the lead will come from the RBA initially, before the wider market appetite from risk takes over. Persistent rumours of further stimulation from monetary authorities in Japan should temper any full blown demand for YEN in the short term.
Current level Support Resistance Last week’s range
AUD/YEN 86.33 84.50 87.50 84.58 - 87.58
AUD/CAD
The CAD saw grinding appreciation over the AUD for much of last week. Primarily this was aided by the increasing chances of a cut from the RBA at tomorrow’s monetary policy meeting. Towards the end of the week the momentum slowed and the support at 1.0300 proved a step too far for the pair. The stronger than expected official Chinese manufacturing data saw the AUD pop higher to start the week, but since then it has given back a portion of its gains as Australian building approvals slumped. The RBA decision is the next focus. In Canada the raft of building, employment and manufacturing data on Thursday will be closely watched. The 1.0300 support levels remains the key in the short term, consolidation lower through this level opens up the way for further weakness from the AUD. Alternatively if the support holds and we see a further lowering of the oil price, the CAD could come under pressure.
Current level Support Resistance Last week’s range
AUD/CAD 1.0365 1.0300 1.0500 1.0306 - 1.0468