ECONOMY

Markets take a breather : Weekly FX Update - 20 August 2012

Monday 20 August 2012, 6:34PM
By Direct FX
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By Sam Coxhead from www.directfx.co.nz

 

Market Overview:
The financial markets were moribund for the most part last week. Summer holidays in the northern hemisphere have seen materially lower levels of activity for extended periods. This has meant a continuation of the recent range bound price action for many pairs. The economic news remains mixed as is widely expected across the globe. In Europe the political maneuvering continues as the periphery push for the easing of budgetary constraints remain in efforts to salvage growth. This comes as signs of further slowing in the engine room economy of Germany become more evident.  Prospects for the 2nd half of 2012 seem a little more stable in the likes of the UK and the US. The recent consolidation of important consumer sentiment numbers seems likely to follow through to more energetic spending. Things continued to tick over in Australasia in what was a quiet week for economic news. Interest was sparked in Australia late in the week as a Treasury report pointed towards further cash rate easing from the RBA. The high level of the Australian dollar being blamed for the stagnant non-mining economy.
 

Australia
Last week saw only second tier economic data released in Australia. Surveys revealed a bounce in business confidence, but another fall in consumer sentiment. In a week lacking excitement and leading to relatively small ranges for most pairings, the focus came on Friday as a report from the Australian treasury pointed out the potential for further easing to the cash rate if conditions deemed it appropriate. This week sees the central bank focus continue with Tuesday’s release of the meeting minutes from the last RBA monetary policy decision. RBA Governor Stevens also features as he speaks on the economy in Canberra on Friday.
 

New Zealand
Second quarter retail sales numbers were the focus in the New Zealand econom6y last week. Whilst the result was close to expectations at +.9% growth for the quarter, it was the upward revision of the previous first quarter reading that produced the surprise. This week coming sees another lean data calendar. The only release of note are the RBNZ inflation expectations survey results on Tuesday.
 

United States
Last week materially stronger than expected retail sales numbers for July provided the initial burst of energy in US markets. Inflation numbers again proved benign as the economy continues its slow recovery. Weekly jobless claims numbers also continue their recent improvement and maintain hopes for further strength in the labour market for the remainder of 2012. Improving consumer sentiment numbers mirror the labour market improvement, but the enthusiasm was tempered by a further softening in manufacturing numbers. This week will see the focus come from Wednesday’s release of the minutes from the FED’s previous monetary policy meeting.
 

Europe
The contraction in 2nd quarter European economic growth was released at -.2% as expected. The stagnating economy is a byproduct of the enforced austerity measures in the south, and is providing a focus for frustrated Europeans. Expect the political cajoling to increase as German growth stumbles, also expect Spain and Italy to remain in the cross hairs in the short term. This week sees the European manufacturing numbers released, and these provide the focus for the week. We expect further range trading from the Euro ahead of the September 6th monetary policy meeting of the European Central Bank (ECB).


United Kingdom
Sentiment was surprisingly buoyant in the UK last week. Higher than expected inflation numbers point to a lower chance of further easing to the record low cash rate. Better than expected employment numbers were joined by a materially better than expected retail sales report. The Bank of England (BOE) monetary policy meeting minutes point towards a stable cash rate as the effects of the recent efforts to increase bank lending are passed. The focus of the coming week is the release of the final 2nd quarter GDP numbers on Friday.


Japan

Weaker than expected preliminary 2nd quarter GDP numbers dented sentiment in the Japanese economy last week. Further punishment was avoided when an upward revision of the 1st quarter number was taken into account. The market believes Japanese authorities will act to weaken the YEN if required and this has tempered demand for the YEN over the last few weeks. This week’s focus comes from the trade balance numbers on Wednesday, ahead of the speech by the Bank of Japan (BOJ) head on Friday.
 

Canada
The Canadian dollar saw reasonable demand last week. This came in the face of lower than expected inflation and manufacturing numbers. Increased merger and acquisition buying of CAD in the last month or so could well continue to provide latent demand in the short term. This week’s focus comes from the July retail sales numbers due for release on Wednesday.

Major Announcements last week:
•         NZ Retail Sales 2nd QTR +.9% vs +1.0% expected
•         UK Inflation 2.6% vs 2.3% expected
•         US Retail Sales +.8% vs +.4% expected
•         US Inflation +.1% vs +.2% expected
•         UK Retail Sales +.3% vs 0.0% expected
•         US Philadelphia FED Manufacturing Index -7.1 vs -4.7 expected
•         CAD Inflation -.1% vs +.2% expected
•         US UoM Consumer Sentiment 73.6 vs 72.5 expected

NZD/USD 
This pair remains in what has become a familiar .8000- .8200 range. This week’s focus will come from the US for the most part, with just the RBNZ inflation expectations survey to provide interest in NZ. The latest FED monetary policy meeting minutes on Wednesday will likely be a highlight ahead of the durable goods sales (large ticket purchase) data on Friday. Expect the range trading to continue in the short term, continuing a theme that has been apparent for large parts of 2012 already.
  Current level Support Resistance Last week’s range
NZD/USD    .8091     .8000    .8200   .8028 - .8132

NZD/AUD (AUD/NZD)
Late last week the New Zealand dollar managed to take back some of its recently lost ground. Thanks to negative AUD reaction to the Australian Treasury report on Friday, the NZD has pushed back through crucial resistance levels. Consolidation through the .7720 (1.2950) level remains the key in the short term. The NZ focus comes in the form of the RBNZ inflation expectations survey on Tuesday, and this should be of limited impact. More importantly, Tuesday sees the release of the meeting minutes from the last RBA monetary policy meeting. This gains significance after the reaction to Friday’s Treasury report. RBA Governor Stevens also speaks on Friday and his comments will also garner attention. If further appreciation is seen by the NZ dollar, the .7850 (1.2740) level becomes the next significant target.
  Current level Support Resistance Last week’s range
NZD/AUD    .7744     .7700    .7900    .7661 - .7748
AUD/NZD   1.2913    1.2660   1.2990  1.2906 - 1.3053

NZD/GBP (GBP/NZD)
Like many other pairings, this pair had a relatively contained range last week. The better than expected UK data provided some GBP demand and this saw it put pressure on the NZ dollar. This week should see more of the same contained trading for the most part. The real focus for the pair comes on Friday with the release of the final 2nd quarter GDP reading in the UK. If the GBP sees further demand and pushes the NZD down through last week’s lows, the .5050 (1.9800) level becomes the next target. However that does seem a long way off in the current environment.
  Current level Support Resistance Last week’s range
NZD/GBP      .5155     .5050   .5250    .5125 - .5185
GBP/NZD     1.9399    1.9050   1.9800   1.9286 – 1.9510

NZD/CAD
This pair was relatively stable last week, with just one period of NZ dollar underperformance. Expect more range trading this week for the most part. In the absence of top level economic data in New Zealand, Canada’s retail sales number on Friday becomes the focus. Last week’s lows around the .7950 level is the initial target should further NZD weakness eventuate. It is likely this pair will have its lead provided by the fortunes of the US dollar for the most part.
   Current level Support Resistance Last week’s range
NZD/CAD    .8001    .7900   .8100   .7958 - .8056

NZD/EURO (EURO/NZD)
The NZ dollar saw initial weakness against the EURO last week. After this initial move the range was very contained in line with other markets. Given the lofty levels the NZ dollar has been at against the EURO, further downside cannot be ruled out. A breakdown through last week’s lows of .6520 (highs 1.5340) will provide the initial test. With just the RBNZ inflation expectations survey this week in NZ, the European manufacturing numbers will provide the data focus when released on Thursday. Given the forces at play ahead of the next ECB monetary policy meeting, there is potential for some sharp moves in the coming weeks.
  Current level Support Resistance Last week’s range
NZD/EURO     .6561     .6450    .6650      .6515 - .6612
EURO/NZD     1.5241     1.5040   1.5500    1.5124 - 1.5350

NZD/YEN (NZD/YEN)     
The NZ dollar saw some moderate appreciation against the YEN last week. This increased demand followed the better than expected retail sales number in New Zealand, and lower than expected preliminary GDP numbers in Japan. Whilst towards the upper end, the pair remains within its broader range. Expect the resistance at 64.20 to provide a stern initial test for any further NZ dollar appreciation. There is an absence of top tier economic data in either economy this week, so expect the lead to come from the wider market’s appetite for risk.
  Current level Support Resistance Last week’s range
NZD/YEN    64.33     62.50   64.50    63.22 – 64.44

AUD/USD
The Australian dollar saw pressure from the US dollar last week. It was a dual theme of US dollar demand earlier in the week, coupled with reasonable levels of supply following the treasury report on Friday. This week has a central bank focus in Australia. First comes the RBA monetary policy meeting minutes on Tuesday. RBA Governor Stevens then speaks on the economy Friday morning. In the US, housing numbers, FED monetary policy meeting minutes and durable goods orders will all be closely watched. Expect initial support at 1.0400 for any further AUD weakness in this pairing.
  Current level Support Resistance Last week’s range
AUD/USD    1.0451     1.0400    1.0600    1.0406 - 1.0573

AUD/GBP (GBP/AUD) 
The Australian dollar saw renewed pressure from the Pound Sterling last week. The pair was driven by increased demand for the GBP and falling demand for the AUD, especially following the Treasury report on Friday. Ironically, even after last week’s weakness, from a historical perspective the current levels still offer good value buying of GBP with AUD. The main focus in the UK will be Friday’s release of the revised 2nd quarter GDP numbers. In Australia the RBA monetary policy meeting minutes on Tuesday will be followed by a speech on the economy by RBA Governor Stevens on Friday. Both will be watched attentively by market players.
  Current level Support Resistance Last week’s range
AUD/GBP    .6659    .6550    .6750   .6625 - .6740
GBP/AUD    1.5017    1.4815   1.5270 1.4837 - 1.5094

AUD/EURO (EURO/AUD)
The EURO finally started to take back some of its recently lost ground to the AUD last week. Whilst it was not all one way traffic, it was a solid performance from the EURO. Friday’s Australian treasury report pushed the pair to crucial levels. Whilst the EURO was not able to break through the AUD support at .8420 (1.1880), this level remains the target for further EURO appreciation. In Australia this week’s focus will be the release of the RBA monetary policy meeting minutes on Tuesday. RBA Governor Stevens speaks on the economy on Friday and this will also be closely followed. In Europe the monthly manufacturing numbers are due on Thursday and provide the data highlight for the week. Expect further EURO volatility as we head into the September 6th ECB monetary policy decision.
  Current level Support Resistance Last week’s range
AUD/EURO    .8475    .8420   .8620     .8424 - .8599
EURO/AUD   1.1799   1.1600   1.1880   1.1629 – 1.1871

AUD/YEN
The YEN was under pressure across the board last week, and against the AUD was no exception. The BOJ monetary policy meeting minutes last week continued the theme of  verbal intervention to weaken the YEN. The lower than expected preliminary GDP numbers in Japan added impetus to the BOJ rhetoric. However the pair remains within its broader 81.50 – 83.50 range that we have seen for the last six weeks or so. This week sees the focus rest squarely in Australia with the RBA monetary policy meeting minutes release on Tuesday followed by a speech by RBA Governor Stevens on Friday.
  Current level Support Resistance Last week’s range
AUD/YEN    83.09     80.50    83.50    82.20 – 83.50

AUD/CAD
The AUD finally came under some intense pressure from the Canadian dollar last week. The move was almost entirely one way traffic, however the inability of the pair to maintain the break below 1.0300, has stemmed the AUD weakness for now. Ironically, from a historical perspective the current levels can be regarded as offering very good value buying of CAD with AUD. The focus this week will come from Australia for the most part. The RBA monetary policy meeting minutes on Tuesday will be the primary focus. RBA Governor Stevens speaks on the economy on Friday morning and this will also be closely watched. Monthly retail sales numbers on Wednesday in Canada will be followed but will likely be of limited impact.
  Current level Support Resistance Last week’s range
AUD/CAD    1.0334     1.0300    1.0500    1.0285 - 1.0482

This content originally posted at www.directfx.co.nz .