Weekly FX Update - 30th April 2012
Monday 30 April 2012, 5:06PM
By Direct FX
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By Sam Coxhead of www.directfx.co.nz
Market Overview:
Global financial markets were orderly for the most part last week. Sideways price action within contained ranges were again the feature for the most part. But market movements do indicate that this sideways trading pattern maybe coming to an end at some stage soon. Surprisingly towards the end of last the US dollar saw pressure almost across the board. In a week when we saw the Spanish credit rating get downgraded, austerity ignited political tension across Europe and 10 trillion YEN in additional quantitative easing (QE) from the Bank of Japan, a weaker US dollar was not the obvious conclusion. This points toward investor cynicism that the US Federal Reserve (FED), will allow any material US dollar appreciation in the current environment.
In Australia, Tuesdays lower than expected inflation numbers ease the way for the expected 25 point cut to the cash from the Reserve Bank of Australia (RBA) tomorrow. There has been speculation about a deeper 50 pt to a cash rate of 3.75%, but this seems highly unlikely. Tomorrows cut will be accompanied by the usual statement, but the quarterly RBA Monetary Policy Statement comes on Friday to add further colour to the situation. Also of note this week for the Australian economy is tomorrows release of the latest official Chinese manufacturing numbers.
The Reserve Bank of New Zealand (RBNZ) held the cash rate at the historically low rate of 2.50% as expected last week. In what was a very short statement, Governor Bollard made a verbal volley at the level of the NZD, adding that continued high levels would require them to “reassess the outlook for monetary policy settings”. However any change to the cash rate is highly unlikely in 2012. The focus for the week coming will be the first quarter employment numbers at their release on Thursday.
In the US the FED monetary policy decision and statement were fairly benign, but the dollar weakening tool of QE remains within reach if required. Consumer confidence numbers have held up reasonably well, with housing numbers gradually climbing from the lows. Advanced GDP numbers for the quarter were slightly lower than market estimates, but still within the expected range and comparatively healthy. One area of concern will be the trend back higher of the weekly jobless claims numbers. With the focus this week being the employment numbers on Friday, expect the labour market to be of central debate this week. Ahead of the employments numbers, the manufacturing index on Tuesday will be closely watched.
In Europe the picture was increasingly gloomy last week. Lower sentiment, manufacturing and employment numbers in peripheral states were added to by the S&P downgrade of Spain. Austerity inspired political instability and civil unrest are increasing. Interestingly calls have increased for easing of the current 1% cash rate. Barclays Bank are the latest issuing a note to clients stating that a lower cash rate would be more beneficial than further longer term funding efforts. The European Central Bank (ECB) monetary policy decision on Thursday provides the primary focus in Europe this week. No change is expected at this meeting, but the statement and comments will be closely followed for clues to direction going forward.
The preliminary UK GDP confirmed that the UK has slipped back into technical recession (2nd consecutive quarter if negative growth). However the -.2% number was within the expected range and the Pound Sterling was able to hold onto the majority of its recent gains. Consumer confidence numbers reiterate the buoyant retail sales numbers from last week. This week coming sees a flora of manufacturing, construction, housing and services numbers that will provide updated colour to the UK economy. Close neighbor, and primary export market Europe, presents a hurdle for any improvement in the UK outlook.
Canadian retail sales numbers were close to expectations last week. The recent CAD appreciation appears to have been driven by a number of factors. An increased demand for fixed income offerings, continued buoyant oil pricing and the reasonable performance of the US economy all being positive factors. This week the focus comes in the form of the monthly GDP numbers late Monday ahead of the manufacturing index on Friday.
Last week was an interesting one for the Japanese economy. The BOJ increased they QE program by a largely expected 10 trillion YEN. Officials will be disappointed with the result in that the YEN has seen reasonably strong demand since the announcement. Progress this week will be closely watched to ascertain whether or not the recent moves have been flow driven, or the tool has become less affective. There is little in the way of economic data of impact due for release this week, as it is Golden Week in Asia. Expect the lead to come primarily from the wider equity markets.
Major Announcements last week:
• HSBC Chinese manufacturing Survey 49.1 vs 48.3 previous
• Euro-zone Manufacturing Survey 46.0 vs 48.1 expected
• Australian Inflation +.4% vs +.6% expected
• Canadian Retail Sales +.5% vs +.6% expected
• US New Home Sales 328k vs 321k expected
• UK Preliminary GDP -.2% vs +.1% expected
• US Durable Goods Sales -1.1% vs +.6% expected
• FED leave monetary policy unchanged as expected
• RBNZ leaves monetary policy unchanged as expected
• BOJ increases QE program by 10T YEN
• US advanced GDP 2.2% vs 2.5% expected
NZD/USD
This traded in a very contained range until Friday, when some US dollar weakness was aggressively put on the market. The US dollar weakness on Friday is largely unexplained and probably the result of some kind of large fund asset reallocation. If we see a reversal of this pressure the NZD should slid easily back through .8200, ahead of Thursdays employment number. The pair remains in it recent wider .8100 - .8300 range and will likely continue to remain so ahead of the respective employment reports later this week. There remains widespread uncertainty in the wider market, and logic suggests this should contain any further upside moves for the NZD in the short term.
Current level Support Resistance Last week’s range
NZD/USD .8122 .8100 .8300 .8083 - .8239
NZD/AUD (AUD/NZD)
It was an interesting week for this pairing last week. The Australian inflation number all but confirmed a cut will come from the RBA at tomorrow’s meeting, this would normally have seen the NZD outperform as the cash rate differential closes. However the NZD saw constant pressure from the AUD, but predictably the pair was not able to consolidate below .7830 (above 1.2770). This week again sees the pair open comfortably within what should continue to be the expected range .7830 - .8000 (1.2500 - 1.2770). Tomorrow’s RBA meeting provides initial focus in Australia and is followed by the quarterly Monetary Policy Statement on Friday. In New Zealand the employment numbers on Thursday will be closely followed but should be of limited impact on overall trends.
Current level Support Resistance Last week’s range
NZD/AUD .7865 .7830 .8000 .7814 - .7905
AUD/NZD 1.2715 1.2500 1.2770 1.2650 - 1.2797
NZD/GBP (GBP/NZD)
The recent pressure from the GBP on the NZ dollar remains in place. However, the momentum of the GBP appreciation has waned and the pair has found NZD support at the important psychological level of at .5000 (GBPNZD 2.000). In the UK we have various manufacturing, services, housing and construction numbers to be released which will be of limited impact. The NZ employment numbers on Thursday are the highlight of the domestic calendar, but also are unlikely to provide a material lead. Expect the general risk appetite to be the primary driver this week, which should lead to a fairly contained range. Current levels provide fairly good value buy of NZD with GBP.
Current level Support Resistance Last week’s range
NZD/GBP .5048 .5000 .5200 .5009 - .5076
GBP/NZD 1.9810 1.9231 2.0000 1.9700 - 1.9964
NZD/CAD
The CAD strength continued last week and the pair broke the support at .8050 and spent most of the week below that level. The USD weakness that pressured the market late Friday gave the NZD some respite and the NZD managed to claw back some of its lost ground. Expect this week’s range to offer similar levels, assuming we do not see further US dollar weakness for no apparent reason. Canadian GDP numbers late Monday provide the initial focus, ahead of the NZ employment numbers on Thursday.
Current level Support Resistance Last week’s range
NZD/CAD .8062 .7950 .8150 .7981 - .8131
NZD/EURO (EURO/NZD)
This pair again traded a fairly contained range throughout the course of last week. Only late in the week after some strange US dollar weakness did the NZD push on up to the highs. Given its limited reaction to the early European news of the Spanish credit downgrade and political tensions, the late rally from the NZD was somewhat surprising. One explanation could be the successful NZ Govt Bond tender late in the week. This week sees the focus come in on the NZ employment numbers on Thursday, ahead of the ECB monetary policy decision, also on Thursday. No change is expected from the ECB, but pressure is building for a cash rate cut. The statement will be closely followed, as will the respective member central comments.
Current level Support Resistance Last week’s range
NZD/EURO .6206 .6100 .6300 .6135 - .6217
EURO/NZD 1.6113 1.5875 1.6400 1.6085 - 1.6299
NZD/YEN (NZD/YEN)
This pair has spend the last week moving around within expected ranges. The BOJ decision to expand its QE program by 10 trillion YEN has had little effect in the foreign exchange markets, and the YEN has actually appreciated since the announcement. This will be irritating for officials and do not be surprised to hear increased speculation about further possible intervention. The focus this week will be on the NZ employment numbers on Thursday in the absence of any top tier Japanese economic data. The lead will come from the wider markets appetite for risk, with volumes expected to be light as Golden week is celebrated in Asia.
Current level Support Resistance Last week’s range
NZD/YEN 65.92 65.50 67.50 65.37 - 66.82
AUD/USD
After seeing some initial pressure from the US dollar, and seeing lows after the inflation data released on Tuesday, the AUD saw strong demand for the remainder of the week. Somewhat inexplicable US dollar weakness on Friday accelerated the AUD rise to the highs. This week has opened a little softer and right on the resistance level of 1.0450. Such demand ahead of the likely cut in the cash rate to 4.00% from the RBA tomorrow is surprising. Chinese manufacturing numbers on Tuesday will also be closely watched. Attempts to move higher from current levels will likely be harder fought for the AUD from current levels.
Current level Support Resistance Last week’s range
AUD/USD 1.0455 1.0250 1.0450 1.0245 - 1.0475
AUD/GBP (GBP/AUD)
The GBP has managed to maintain its recent pressure on the AUD, albeit the AUD has climbed off the lows. This week sees the focus come onto the RBA at both tomorrow’s monetary policy meeting, and the quarterly Monetary Policy Statement on Friday. There is not top tier economic data due for release in the UK, so the remainder of the lead will likely come from wider market appetite for risk. With this in mind any topside moves from the AUD from current levels will be hard fought.
Current level Support Resistance Last week’s range
AUD/GBP .6420 .6350 .6550 .6353 - .6439
GBP/AUD 1.5576 1.5270 1.5750 1.5330 - 1.5740
AUD/EURO (EURO/AUD)
The AUD saw initial pressure from the EURO last week. The AUD low for the week was set following the Australian inflation numbers that pointed towards an RBA cash rate cut this week. However since reaching the weeks lows the AUD saw grinding appreciation for the remainder of the week to finish at the highs. This week starts just back from those highs and has a distinct central bank focus. The RBA will likely cut the cash rate to 4.0% tomorrow. On Thursday it is the turn of the ECB to meet, but a change is unlikely at this meeting. Pressure is building for a cut from the current 1.0% cash rate. This comes after a sharp pull back in expectations for the wider European economy for 2012 and beyond. The .7950 (1.2580) level represents solid EURO support, and it would surprise to see this levels breached in the coming week.
Current level Support Resistance Last week’s range
AUD/EURO .7890 .7750 .7950 .7786 - .7904
EURO/AUD 1.2674 1.2579 1.2903 1.2650 - 1.2843
AUD/YEN
This pair again had a volatile week last week, albeit in a moderately contained range. The YEN saw demand initially to start the week and this accelerated following the Australian inflation number release. The AUD then saw demand increase and the pair traded a narrow range for the remainder of the week. The BOJ increase in QE has had little effect and is worth noting. The focus for the pair this week comes entirely from the RBA. They start with what will likely be a 25pt cut to the cash rate tomorrow and is finished off on Friday with the release of their quarterly Monetary Policy Statement. Aside from the influence of the RBA, the remainder of the weeks lead with come from the wider market appetite for risk, with the AUD underperforming should global growth concerns increase.
Current level Support Resistance Last week’s range
AUD/YEN 83.81 82.80 84.80 82.85 - 84.74
AUD/CAD
The CAD put further pressure on the AUD for a good portion of last week, before the demand for AUD increased to round out the week. The AUD demand increased as the US dollar came under pressure. This week’s focus in Australia comes from the RBA. Tomorrows monetary policy decision comes before the quarterly Monetary Policy Statement on Friday. In Canada the focus comes in the form of the GDP number later on today (Monday). Expect further investigations lower by this pair to again find substantial support at 1.0150. Any investigations higher towards resistance at 1.0350 would certainly be in the absence of negative news in Europe this week, or anywhere else for that matter.
Current level Support Resistance Last week’s range
AUD/CAD 1.0252 1.0150 1.0350 1.0147 - 1.0314