Weekly FX Update - 16th April 2012
Monday 16 April 2012, 4:22PM
By Direct FX
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Written by Sam Coxhead of www.directfx.co.nz
Market Overview:
The choppy nature of foreign exchange markets continued last week. Increasing concerns about Spain’s Government and bank debt undermined EURO demand and paved the way for periods of US dollar strength. Complicating matters has been somewhat mixed messages coming from various European Central Bank members. There are certainly conflicting views in Europe about how to best help with the economic recovery and it would not surprise to see further tension in the coming months. News from China has been mixed with higher than expected inflation, better trade balance numbers, but weaker GDP figures. Overall the global picture continues to look mixed and growth sluggish. Generally markets are lacking clear direction as the slow recovery continues.
In New Zealand there was a distinct lack of domestic focus for the market last week. The NZ Institute of Economic Research’s Quarterly Survey of Business Opinion being the only highlight. Survey results point towards very moderate activity and all areas except Christchurch, where the rebuild is finally starting to gather momentum. The Real Estate Institute of NZ monthly data points towards higher house prices across the board, but particularly in Auckland. This is positive for consumer sentiment, and will be interesting to see if there is follow through from this to other sectors, retail in particular. The focus this week are the inflation numbers on Thursday, with an expectation of +.6% for the first quarter.
In Australia last week the hot topic was demonstrably stronger than expected employment data. Whilst it was a broadly strong number, the interest rate market has still almost fully priced a 25pt cut to the cash rate from the Reserve Bank of Australia (RBA) at their early May meeting. This week sees the previous monetary policy meeting minutes released on Tuesday, and these will be closely watched. With increased concerns about Europe, the tapering off of commodity markets and tepid domestic demand in Australia, the Australian dollar should continue to underperform for the most part in the short term.
In the US last week there was a deluge of comments from various FED officials. Debate remains around the prospect of further quantitative easing to help stimulate further recovery. Whilst it remains unlikely in the short term, having it remain on the table as an option is in the FEDs interest as it helps tame any aggressive US dollar demand. This is particularly important as fears increase in Europe and we see the associated demand increase for the US dollars. This week sees the usual flora of economic data due for release in the US. Of particular note will be Tuesdays retail sales numbers and Thursdays manufacturing index from the Philadelphia Federal Reserve.
Concerns about the ability of Spain and its banks to raise funds increased on Friday as the March ECB lending numbers revealed the record amount of funding for Spanish banks. No doubt this type of increased concern will happen periodically over the coming years and is to be expected. The European inflation numbers on Tuesday will be particularly pertinent this week, as debate increases at the ECB about future pricing pressures within the Euro-zone. Along with the increasing concerns comes debate around the future viability of the EURO, and this can often fuel further the anxiety.
The UK economy was off the radar last week as it had just the trade balance data due for release. Even that was uneventful, being marginally worse than expected. On a positive note S&P affirmed the AAA credit rating and maintained a stable outlook. This week’s focus starts on Tuesday with the inflation numbers. The previous monetary meeting minutes from the Bank of England (BOE) are released Wednesday and the retail sales are due Friday. The Pound Sterling saw periods of pressure throughout last week, suffering with the vulnerable EURO. Expect a more resilient performance this week, with gains for the NZD and AUD more difficult from the current levels.
The Bank of Canada (BOC) released its business outlook survey early last week. It was a positive survey with increased optimism coming from the an improved outlook of its largest trading partner the US. This week see the BOC again the focus in what is expected to be an unchanged monetary policy decision on Tuesday. Inflation numbers on Friday will also be closely watched.
The Bank of Japan left monetary policy unchanged at their meeting last week. Subsequent media reports are that they will increase their quantitative easing program later on in the month. The current account numbers we much stronger than expected and that was a positive sign for the economy if it can be continued. This week is light on economic data and will mean much of the lead for the YEN will come from equity markets. If equities are week and European concerns remain elevated, expect the YEN to outperform.
Major Announcements last week:
• Japanese Current Account .85trillion vs .66 expected
• China Inflation 3.6% vs 3.3% expected
• China Trade Balance 5.4billion vs -2.2 expected
• BOJ leaves monetary policy unchanged
• NZIER Business Confidence 13 from 0.0 previous
• Australian Unemployment 5.2% as expected
• China GDP 8.1% vs 8.4% expected
• US Inflation .2% as expected
NZD/USD
Further range trading continued for this pair last week. Whilst upside investigations were made, the inability to consolidate through the .8300 level means resistance remains in place. This week has started with NZD lower, along with generally increased risk aversion. Expect much of this week’s lead to again come from the wider market risk appetite. The NZ inflation numbers on Thursday will be watched, but are unlikely to see dramatic reaction from the market. In the US retail sales on Tuesday and manufacturing numbers Friday could provide direction. Overall, expect further range trading from this pair this week.
Current level Support Resistance Last week’s range
NZD/USD .8203 .8100 .8300 .8117 - .8321
NZD/AUD (AUD/NZD)
This pair remained within its newly established range throughout the course of last week. The surprising strength of the Australian employment numbers did see a strong AUD push initially, but the gains were unsustainable. Expect the .7830 - .8000 (1.2500 - 1.2770) range to continue cover price action in the short term. This week’s focus is provided by the RBA monetary policy meeting minutes on Tuesday, and the NZ inflation numbers Thursday.
Current level Support Resistance Last week’s range
NZD/AUD .7946 .7830 .8000 .7885 - .7982
AUD/NZD 1.2585 1.2500 1.2770 1.2528 - 1.2682
NZD/GBP (GBP/NZD)
The NZD saw gains against the GBP last week as the GBP followed the EURO in moves lower. Risk aversion to start the week has again seen the pairing pushed below the .5200 (above 1.9230) level, and any further upside gains for the NZD will be harder fought from the current levels. Inflation numbers are the focus for the week, with UK inflation on Tuesday, followed by the NZ number on Thursday. BOE monetary policy meeting minutes on Wednesday will also be very closely watched.
Current level Support Resistance Last week’s range
NZD/GBP .5183 .5000 .5200 .5121 - .5214
GBP/NZD 1.9493 1.9230 2.0000 1.9179 - 1.9527
NZD/CAD
The NZD saw grinding appreciation against the CAD throughout most of last week. Friday saw the European debt concerns increase and stock markets move lower, and this ended the NZD rise. This week has again started with further risk aversion and the NZD demand has tapered off accordingly. Although the BOC are expected to leave monetary policy unchanged on Tuesday, their rhetoric will be closely followed. New Zealand inflation number on Thursday are flowed by the Canadian inflation numbers on Friday. The now familiar .8050 - .8250 range should hold the price actions for the most part again this week.
Current level Support Resistance Last week’s range
NZD/CAD .8199 .8050 .8250 .8142 - .8276
NZD/EURO (EURO/NZD)
The NZD saw mostly grinding appreciation against the EURO last week. The escalation of concerns about the ability of the Spanish Government and banks to access funding markets drove the move. This week starts with the pairing right on the crucial .6300 (1.5875) level. Consolidation through this level opens up the way for further strength from the NZD. So it is going to be an interesting week with much of the focus coming from the European debt markets, and the NZ inflation number on Thursday.
Current level Support Resistance Last week’s range
NZD/EURO .6298 .6100 .6300 .6206 - .6318
EURO/NZD 1.5878 1.5875 1.6400 1.5828 - 1.6113
NZD/YEN
Trading for this pair has been volatile but within a contained range throughout the course of last week. It sold off from the peak as the concerns over Spanish debt increased into the end of the week. The pair starts this week lower again as the risk aversion gathers momentum. Expect the NZ inflation number on Thursday to provide the domestic focus, whilst the wider market risk appetite provides the dominant lead.
Current level Support Resistance Last week’s range
NZD/YEN 66.34 65.50 67.50 65.56 - 67.48
AUD/USD
The volatile nature of this pairing was aptly displayed last week with sharp moves occurring almost on a daily basis. The AUD strength was provided by the stronger than expected Australian employment numbers. Aiding the move higher for the AUD were rumours of a 9.0% Chinese GDP number. The 8.1% disappointment has been coupled with increased European debt concerns, and these pressures ensure the AUD opens this week under considerable pressure. The Australian focus comes in the form of the RBA monetary policy meeting minutes on Tuesday. In the US, retail sales numbers late on Monday are followed by manufacturing numbers on Friday.
Current level Support Resistance Last week’s range
AUD/USD 1.0320 1.0240 1.0440 1.0222 - 1.0454
AUD/GBP (GBP/AUD)
Following the stronger than expected Australian employment numbers last week, the AUD saw strong demand against the GBP. The pairing has started this week with the AUD under a little pressure, which is in line with the wider market risk aversion. The RBA monetary policy meeting minutes release on Tuesday provides the initial focus. In the UK we have inflation numbers also on Tuesday, ahead of the BOE monetary policy meeting minutes Wednesday and retail sales figures on Friday. Expect the recent 6450 - .6650 (1.5030 - 1.5500) range to contain the price action this week.
Current level Support Resistance Last week’s range
AUD/GBP .6520 .6450 .6650 .6447 - .6551
GBP/AUD 1.5337 1.5030 1.5500 1.5265 - 1.5510
AUD/EURO (EURO/AUD)
The stronger than expected Australian employment data provided the initial boost to the AUD. The move was aided by the re-escalation of Spanish funding concerns that will likely continue this week. The key resistance at .7950 (support 1.2580) has held for the time being, and any further appreciation from the AUD will likely be harder fought from current levels. The RBA monetary meeting minutes when released on Tuesday provide the initial focus, ahead of German economic sentiment numbers also on Tuesday. The week is rounded out by German business outlook numbers on Friday. Expect the spotlight to remain on the funding markets in Europe and political tensions growing at the ECB.
Current level Support Resistance Last week’s range
AUD/EURO .7925 .7750 .7950 .7818 - .7941
EURO/AUD 1.2618 1.2580 1.2903 1.2593 - 1.2790
AUD/YEN
This pairing saw sideways trade for much of last week. Most price action was driven by wider marker risk appetite, but the Australian employment numbers were directly of AUD positive impact. The increased risk aversion to finish the week after the lower than expected Chinese GDP number, and the ECB bank lending results showing Spanish bank reliance on funding lines. If the risk aversion continues, expect investigations towards the support at 82.50. The RBA monetary policy meeting minutes on Tuesday provide the sole economic data focus for the two economies this week.
Current level Support Resistance Last week’s range
AUD/YEN 83.47 82.50 84.50 82.46 - 84.81
AUD/CAD
The AUD saw steady appreciation against the CAD for the first half of last week. The real push higher came on the back of the stronger than expected employment numbers. The strength did not last as the Chinese growth numbers disappointed and then the wider market concerns about Europe increased. This week has started with further risk aversion and has pushed the pair to what are now mid range levels of the recent range. Tuesday sees the RBA monetary policy meeting minutes released ahead of the BOC monetary policy decision and statement later in the day. The Canadian inflation numbers on Friday will also be closely watched.
Current level Support Resistance Last week’s range
AUD/CAD 1.0317 1.0200 1.0400 1.0222 - 1.0408