Direct FX Weekly FX Update - 6 February 2012
Written By Sam Coxhead of www.directfx.co.nz
Market Overview:
The wave of optimism washing through financial markets in 2012 continued to gather pace last week. The better than expected run of economic data continued. These good results came from a wide range of economies. Friday’s strong US employment numbers saw the US dollar stablise. A small bounce in the fortunes of the US dollar may continue to eventuate, as the near term likelihood of further quantitative easing (QE) from the Federal Reserve (FED) diminishes . News from Europe remains mixed. The European Central Banks (ECB) efforts to provide longer term funding to banks are having a significantly positive effect across debt markets, but a resolution on the writing down of Greek debt remains a work in progress. Global stock markets were generally higher on the week, as the positive sentiment spread.
In New Zealand there was no top tier economic data last week. The NZ dollar remained in demand, in what appears to be further asset re-allocation from AUD to NZD. This switch from AUD to NZD comes ahead of the Reserve Bank of Australia (RBA) interest rate announcement tomorrow, and is to be expected as the cash rate differential between the two economies decreases. The NZ domestic data focus this week will be solely on the labour markets. The quarterly Labour Cost Index and unemployment numbers are due for release on Tuesday and Thursday respectively.
The Australian dollar remains at what can be considered as extended levels. The more positive global outlook is providing the driving force behind demand. Tempering further enthusiasm, is the RBA monetary policy decision tomorrow. The cash rate is expected to be cut 25pts to 4%, with expectations it will be at 3.5% by midyear. Also of note is the quarterly release of the Monetary Policy Statement from the RBA on Friday. This document provides valuable insight into how the RBA view both the domestic, and global outlooks.
The positive 4th quarter 2011 US economic data has continued into 2012. Friday’s much stronger than expected employment numbers will douse much of the enthusiasm for further QE in the short term. Broad based growth momentum is starting to build with both monaufacturing and non-manufacturing numbers beating expectations. This week is light on economic data in the US, with just a couple of speeches from FED chairman Bernanke, and consumer sentiment on Friday expected to provide any domestic US excitement.
In Europe the picture remains somewhat mixed. The ECB initiative to provide longer term funding facilities to the banking sector is certainly easing the way back towards more normal money market operations. Obviously the potential sticking point to more wide spread relief remains centered on Greece in the short term. The extent of private write downs on Greek debt remains the point of contention. Until agreement on this is reached, Greece’s place at the Euro-zone table remains in doubt.
Up until Friday the market had expected 75bio worth of further QE from the Bank of England (BOE) at their monetary policy meeting on Thursday this week. However the much stronger than expected services sector numbers have seen expectations pared back somewhat towards 50bio. The more positive signs for the economy are encouraging, but any outright optimism is unlikely to eventuate fully until a sustained period of positive news is seen. Apart from the BOE announcement on Thursday, housing numbers Monday, and manufacturing numbers Tuesday, will be closely watched.
In Canada last week the slightly disappointing growth and employment numbers saw the Canadian dollar under renewed pressure. The US employment numbers stemmed the downward pressure after their release, to support the CAD. The monthly GDP number came in at 2.4% against an expected -.1%, and employment growth was weak, pushing the unemployment rate up from 7.5% to 7.6%. This week sees manufacturing numbers released Tuesday, building numbers Wednesday, and the trade balance on Friday.
Major Announcements last week:
• Canadian GDP -.1% vs +.2% expected
• Chinese Manufacturing PMI 50.5 vs 49.8 expected
• UK Manufacturing PMI 52.1 vs 50.1 expected
• US ISM Manufacturing PMI 51.1 vs 54.6 expected
• UK Services PMI 56 vs 53.5 expected
• Euro-zone Unemployment rate 10.4% as expected
• Canadian Unemployment rate 7.6% vs 7.5% expected
• US ISM Non-Manufacturing PMI 56.8 vs 53.1 expected
• US Employment growth 243k Jobs vs 150k expected
• US Unemployment rate 8.3% vs 8.5% expected
NZD/USD
The NZ dollar continued its appreciation against the US dollar for the most part last week. The momentum does seem to be slowing somewhat. The stablisation of the US dollar on most pairings should see any further gains by the NZD from current levels, a lot harder to sustain. This week will see a more New Zealand focus for the pairing, in the absence of top tier data due for release in the US. Employment cost numbers on Tuesday are followed by the important quarterly employment numbers on Thursday. Any upside moves from the New Zealand dollar should run into solid resistance at .8400 initially. US FED chair Bernanke does have two speeches scheduled, and any reference to monetary policy will always garner reaction.
Current level Support Resistance Last week’s range
NZD/USD .8 .8200 .8400 .8153 - .8180
NZD/AUD (AUD/NZD)
The New Zealand dollar continued to apply pressure on the Australian dollar last week. However, it has not been able to push through the crucial NZDAUD resistance level of .7800 (AUDNZD 1.2820). A move through this level would enable it to maintain some upside momentum (AUDNZD downside). The Australian dollar fortunes this week will be mostly dictated by the RBA monetary policy decision. Odds are skewed towards a 25pt cut to the cash rate, but given the strength of the global economic data late last week, a move is not completely assured. In New Zealand, the labour market is the focus of the week. Labour cost numbers come on Tuesday, and quarterly employment numbers on Thursday. If the NZD is able to break the tough resistance at .7800 (AUDNZD 1.2820), the way is opened for another leg higher. Alternately the inability to push higher could result in some NZ dollar weakness in the short term. These factors will ensure the pairing is closely watched this week.
Current level Support Resistance Last week’s range
NZD/AUD .7 .7600 .7800 .7714 - .7792
AUD/NZD 1.3 1.2820 1.3150 1.2833 - 1.2963
NZD/GBP (GBP/NZD)
The NZ dollar managed to make modest gains against the GBP last week. The continued global optimism enabled NZD demand to outpace the resurgent Pound Sterling. Better than expected manufacturing and services numbers in the UK have lowered the amount of further QE expected from the BOE on Thursday from 75 to 50 billion. The BOE monetary policy announcement, along with the NZ labour cost numbers on Tuesday, and quarterly employment numbers on Thursday, will provide the direction for the week. Further upside moves from the NZD would again be harder fought, from the lofty current levels.
Current level Support Resistance Last week’s range
NZD/GBP .5 .5100 .5300 .5199 - .5303
GBP/NZD 1. 1.8870 1.9610 1.8857 - 1.9235
NZD/CAD
The NZ dollars appreciation over the CAD continued last week. Progress did however become more labored, and this in the company of weaker than expected Canadian growth and employment data. The final turning came late Friday with the better than expected US employment numbers dragging the CAD higher with it. Current levels offer great value buying of CAD with NZD. The direction this week will come mostly from NZ. Labour cost numbers on Tuesday are followed by the quarterly employment numbers on Thursday. In Canada, Tuesday’s manufacturing numbers will be followed.
Current level Support Resistance Last week’s range
NZD/CAD . .8150 .8350 .8188 - .8349
NZD/EURO (EURO/NZD)
The NZ dollar continued its recent strong performance against the EURO, setting a new record high of .6384, after the US employment numbers on Friday night. The better than expected global economic data, and stablising core European debt markets, have provided the boost in demand for the growth currencies. All eyes remain on Europe and the potential conclusion of the Greek debt negotiations. The ECB also have their monthly monetary policy meeting this week, but no further policy initiatives are expected at this time. In New Zealand this week sees the focus on the labour market. Labour cost numbers are released on Tuesday, and are followed by the quarterly employment numbers on Thursday. Any news from Greece, with regards to the bond swap program, will see the EURO react.
Current level Support Resistance Last week’s range
NZD/EURO .5648 .5500 .5700 .6213 - .6384
EURO/NZD 1.7705 1.7540 1.8180 1.5664 -1.6095
NZD/YEN (NZD/YEN)
The NZ dollar remained in demand against the JPY as the global risk appetite increased throughout the course of last week. Little from either Japan or NZ had a part in the move. The recent US dollar weakness has seen renewed YEN demand, and the stronger YEN places further strain on Japans beleaguered export sector. This week has more of a domestic focus with NZ labour cost numbers due for release tomorrow, and quarterly employment numbers on Thursday. There is no economic data of note in Japan this week, but the JPY remains on watch for further Bank of Japan (BOJ) intervention, to weaken the JPY.
Current level Support Resistance Last week’s range
NZD/YEN 5 62.50 64.50 62.28 - 64.16
AUD/USD
The Australian dollar again saw gains against the US dollar last week, although the appreciation was more hard fought. What makes these gains impressive is the fact that they were made as we approach the RBA monetary policy meeting on Tuesday. There is still odds on a 25pts cut to the cash rate to 4.0% at the meeting. The RBA quarterly Monetary Policy Statement on Friday will also be closely watched. In the US there are two speeches by FED chairmen Ben Bernanke which will be closely watched, as will the preliminary consumer sentiment numbers on Friday. Current levels represent good value buying of US dollars with AUD at current levels. Once again further appreciation from the AUD should prove to be harder fought.
Current level Support Resistance Last week’s range
AUD/USD .9 1.0600 1.0800 1.0521 - 1.0794
AUD/GBP (GBP/AUD)
The Australian dollar briefly set new record highs against the Pound Sterling last week. Ironically this played out as the UK data was better than expected for the most part, and with the RBA poised to cut the cash rate by 25pts at their monetary policy meeting on Tuesday this week. The AUD has started the week lower and now topside resistance will be in place around the record high. Also from the RBA this week is the quarterly Monetary Policy Statement on Friday and this will be closely followed. Any further insight to the possible timing of further cash rate reductions would see the AUD react. In the UK the central bank theme continues with the BOE poised to increase their QE program by between 50-75billion GBP, to help pull the economy out of its current sluggish growth. Last week’s manufacturing and service numbers were encouraging for the UK economy, but there is a long way to go until the confidence and labour numbers start to materially change. Any further gains from the AUD will again be harder fought from current levels.
Current level Support Resistance Last week’s range
AUD/GBP .6 .6625 .6825 .6712 - .6824
GBP/AUD 1.5 1.4652 1.5094 1.4654 - 1.4899
AUD/EURO (EURO/AUD)
The Australian dollar again set new record highs against the EURO last week, as the positive global economic news boosted the demand for AUD. The pairing opens the week with the AUD slightly lower. This is unsurprising given the prospect of a cut to the cash of 25pts from the RBA on Tuesday at their monetary policy announcement. This announcement will be closely watched, as will its quarterly Monetary Policy Statement on Friday. In Europe the market remains focused on the negotiations underway on the voluntary write downs of Greek debt. Any announcement will cause a reaction. Adding to the mix is the monthly ECB meeting on Thursday, although no extra policy initiatives are expected at this meeting.
Current level Support Resistance Last week’s range
AUD/EURO .7 .7820 .8020 .8012 - .8216
EURO/AUD 1.3 1.2470 1.2790 1.2171 - 1.2481
GBP/USD
The GBP saw grinding appreciation over the US dollar for much of last week, but was unable to consolidate above the solid resistance for the pairing at 1.5850. Both economies saw important stronger than expected economic data towards the end of the week. Expectations for further QE initiatives in the short term from the FED will have been moved markedly lower, by the strong employment numbers. In the UK the BOE monetary policy announcement on Thursday is still likely to see further QE announced, but expectations have been subtly watered down from 75 to 50 billion GBP worth of bond purchases. There is little in the way of top tier economic data in the US this week, but two speeches from FED chair Bernanke and the Friday consumer sentiment numbers will be watched. The BOE is the focus in the UK, along with some housing numbers Monday and further manufacturing data Wednesday.
Current level Support Resistance Last week’s range
GBP/USD 1.5 1.5650 1.5850 1.5650 - 1.5883
GBP/EURO (EURO/GBP)
The GBP saw renewed strength against the EURO throughout the course of last week and the positive economic data that came with it. The better than expected manufacturing and service data in the UK certainly boosted the GBP, and proves that the expectation of further QE from the BOE at Thursdays monetary policy meeting has already been factored in. The ECB also meet on Thursday, but no further policy initiatives are expected at this meeting. The EURO outlook remains patchy, with improved credit market conditions being countered by the ongoing negotiations over the extent of the voluntary write downs on the Greek debt.
Current level Support Resistance Last week’s range
GBP/EURO 1.1800 1.2080 1.1892 - 1.2089
EURO/GBP . .8280 .8480 .8272 - .8409