Weekly FX Update - 17th September 2012

Monday 17 September 2012, 5:48PM
By Direct FX

By Sam Coxhead of

Market Overview:
Last week in the financial markets was both interesting and somewhat surprising. Risk assets such as the AUD and NZD saw steady demand, as positive developments in Europe coupled with decisive action from the US Federal Reserve (FED), to improve sentiment. Certainly the FED have targeted the stubbornly low employment growth rate and will aggressively use policy to try and bolster the US employment market. Interestingly the EURO and Pound Sterling saw increased demand throughout Fridays offshore session, while the Australasian currencies lagged. The Bank of Japan (BOJ) announce monetary policy this week, and look poised to join the FED with further efforts to stimulate their economy. The US dollar has fallen by over six percent in the last two months, as the expectation of last week’s FED decision grew. This fact will not be lost on the BOJ decision makers as they contemplate the stubbornly high level of the YEN. The Bank of England (BOE) are becoming increasingly topical. The market now expects additional QE measure to be forth coming at their November monetary policy announcement. With most central bank monetary policy settings taken care of, the markets focus will return to the economic data. Indications are that the softer tone of the 2nd quarter globally, has certainly continued into the 3rd. Monetary policy adjustments take time to filter through, and this means there are likely to be some tough indicators to feature in the coming months. The opposing pressures of weak global growth indicators, and widespread monetary stimulation, will likely continue in the short term.

Last week was relatively quiet  for economic data in Australia. Recently under pressure hard commodity markets saw resurgent demand, and the FED’s move to QE3 should provide continued support in the coming months. Lower than expected home loans data points to a further softening in the housing market. Importantly for the Australian economy is the continued soft nature of Chinese economic data. The Chinese trade balance was demonstrably higher than expected last week, as import demand waned. This week the focus will be predominantly on the Tuesday’s release of the Reserve Bank of Australia (RBA) monetary policy meeting minutes. These are important as they help the RBA communicate their thoughts on the economy, and set the tone for future policy decisions. The slowing economy will likely see a reduction in the cash rate before the end of the year.  Also of note will be the HSBC Chinese manufacturing data when released on Thursday. China remains very important to the fortunes of the Australian economy, and any additional measures from Chinese authorities to stimulate growth can be viewed as positive for the Australian dollar.

New Zealand
Last week’s focus in the New Zealand economy was the final monetary policy announcement by outgoing Governor Alan Bollard. In his own words he was happy to make a “reassuringly boring” assessment of the economy as he left the cash rate at a record low 2.50%. Monetary policy looks unlikely to require adjustment until well into the second half of 2013 , according to the banks forecasts. The NZ dollar saw strong demand immediately following the FED’s QE3 announcement, but gave back most of the gained ground against most currencies, except the beleaguered US dollar. This week will see the 2nd quarter GDP number released on Thursday and this provides the weeks highlight. Market expectations are for a modest .3% rise, and reaction should be muted unless the number is materially different to this.

United States
The announcement of the FED’s aggressive QE3 program dominated the focus in the US last week. The US dollar was correspondingly weak, especially against the resurgent EURO and to a lesser extent the Pound Sterling . The labour market is the target for the FED’s open ended policy, and until broad based momentum builds the policy will likely remain in place. Interestingly we saw a mixture of numbers released on Friday. Better than expected retail sales and consumer sentiment were partially offset by a 1.2% fall in industrial production numbers. This week sees the release of building permit, housing and manufacturing numbers. The ongoing reaction to the QE3 program will also be interesting to watch. Ratings agency Egan Jones downgraded the US credit rating from AA- to AA, and this may apply further downside to the US dollar in the near term.

Last week saw further recovery of the EURO. Firstly came the positive news of the German Constitutional approval of participation in the European Stability Mechanism (ESM). This decision was crucial for progress to be made towards this permanent bailout fund. Then came the FED’s aggressive QE3 program and the EURO saw further demand to set four month highs against the US dollar. This week sees a return of focus back to the economic data. Tuesday’s German business sentiment numbers are important for the bell weather economy and will be closely watched. Thursday sees the release of the monthly manufacturing numbers and these will provide the real focus. Ongoing developments with regards to the ESM will also continue to dominate headlines. These measures are very important for the strengthening of the foundations of the Euro-zone, and will be on ongoing importance.

United Kingdom
Employment numbers provided the primary focus for the UK economy last week. Lower than expected benefit claims were a positive development. Debate around the upcoming BOE policy meetings has increased. It seems likely the monetary policy committee will embark on further QE. But strong debate surrounds whether or not a lower cash rate should accompany further QE. Unlike their US counterparts, the risk of increased inflationary pressure presents a stumbling block to a lower cash rate. Expect this to be an ongoing debate as we approach the October and then November meetings. The Pound Sterling saw solid demand at times last week. If sentiment in Europe continues to improve, expect to see ongoing demand for the GBP. This week sees the inflation numbers released on Tuesday, BOE monetary meeting minutes on Wednesday, and retail sales on Thursday.

Last week saw a smaller than expected current account number in Japan. This is a direct result of the strong level of the YEN. Last week also saw the final GDP numbers for the 2nd quarter released and these showed at .2% rise. The YEN will likely be at the center of this week’s BOJ monetary policy announcement. With the FED implementing an aggressive easing policy, the BOJ are likely to follow suit with some further policy accommodation of their own at Wednesday’s meeting. Continued rhetoric from the BOJ and the Ministry of Finance points towards increased likelihood of direct market intervention also. Speculation of this nature saw the YEN underperform on Friday, and this is likely to be a continued theme in the short term.

Last week saw a lower than expected trade balance in Canada. This is further evidence of a slowing global economy as the number was driven by lower export demand. The FED’s aggressive monetary policy easing should be of direct benefit to the closely aligned Canadian economy. This week is another quiet one for Canadian economic data, but the focus comes from the monthly inflation data when released on Friday.
Major Announcements last week:

•         Chinese Trade Balance +26.7 Billion vs +18.9B expected
•         German Constitutional Court rules in favour of ESM participation
•         UK Unemployment claims -15k vs +.1k expected
•         RBNZ leaves monetary policy unchanged
•         US Fed embarks on aggressive QE3
•         US Inflation +.1% vs +.2% expected
•         US Retail Sales +.8% vs +.7% expected
•         US Consumer Sentiment 79.2 vs 74.1 expected
•         US credit rating downgrade from Egan Jones from –AA to AA


The NZ dollar saw periods of strong demand last week. The weeks two large events both were in the NZ dollar's favour as the positive German consitutional court's decision and the FED embarkment of QE3 boosted demand. Interestingly the NZD ran out of stem on friday and gave up a good portion of its post FED announcement gains. Global growth remains a concern and this should temper further demand in the short term atleast. NZ 2nd quarter GDP on thursday provides the NZ focus for the week. In the US, building and housing numbers on Wednesday come ahead of important manufacturing numbers Thursday. Resistance comes in at .8350, with initial support at .8200 and then around .8150 below that.
Current Level Support Resistance Last week's range
NZD/USD .8276 .8150 .8350 .8075 - .8356


The NZ dollar outperformed the Australian dollar throughout the course of last week. The recent vulnerability within the hard commodity markets has materially affected demand for the AUD. The RBNZ monetary policy statement last week reiterated the NZ cash rate is likely to remain unchanged for quite sometime, where as the market is looking for atleast one easing from the RBA before the end of the year. With contracting cash rate differentials, the NZ dollar should remain in demand. The focus comes this week starts in Australia with the RBA monetary policy meeting minutes on Tuesday. Thursday sees the release of the 2nd quarter NZ GDP numbers and these will also be closely watched.
Current Level Support Resistance Last week's range
NZD/AUD .7865 .7700 .7900 .7816 - .7891
AUD/NZD 1.2715 1.2660 1.2820 1.2673 -1.2794


It was a very interesting week for this pair last week. The NZ dollar saw periods of solid demand following the positive German court decision supporting the ESM, and the following FED announcement of QE3. However, late on friday the NZD saw some solid pressure from the resurgent GBP. This resurgence in demand for the GBP (and EURO) may continue in the short term as US dollar faces further pressure. Undermining demand for the NZD is the lower of growth expectations for the New Zealand's important Asian markets. 
Current Level Support Resistance Last week's range
NZD/GBP .5101 .4980 .5180 .5049 - .5161
GBP/NZD 1.9603 1.9300 2.0080 1.9376 -1.9806


The NZ dollar saw strong gains against the CAD throughout the course of last week. The renewed risk appetite following positive news in Europe, and the FED's push towards a third round of QE provided the demand. Late friday saw the momentum from the NZD start to wane, so it will be interesting this week to see the price action. NZ 2nd quarter GDP numbers of Thursday are the focus in NZ. In Canada, monthly inflation numbers on friday will be  garner attention. Further gains from the current levels for the NZ dollar look like being harder fought than was the case earlier last week.
Current Level Support Resistance Last week's range
NZD/CAD .8030 .7875 .8075 .7888 - .8072


Last week proved to be very interesting for this pair. The NZ dollar saw waves of strong demand following news from Germany and the US that boosted demand from growth assets. However the move proved unsustainable as late on friday the NZ dollar capitulated against the single currency. The EURO could potentially see further demand as the systemic risks towards the EURO have materially lowered in the last couple of weeks. Consolidation through the .6300 (1.5875) level opens up the way for further EURO appreciation in this pairing.
Current Level Support Resistance Last week's range
NZD/EURO .6303 .6200 .6400 .6298 - .6416
EURO/NZD 1.5865 1.5625 1.6130 1.5586 -1.5878


The NZ dollar saw strong demand against the YEN last week. The ongoing positive news from Europe, coupled with the news of QE3 from the FED fuelled the NZD demand. Easing the way for the NZD appreciation was a market very weary of market intervention from Japanese authorities. The big event for this pair this week will be the BOJ monetary policy announcement. Expect further stimulus to come, in an effort by authorities to support the export sector and weaken the YEN. In NZ Thursday's 2nd quarter GDP number will be closely watched but is unlikely to be of impact unless materially away from the .3% expectation.
Current Level Support Resistance Last week's range
NZD/YEN 64.75 63.50 65.50 63.19 - 65.29


The Australian dollar saw periods of staggering demand agaionst the US dollar last week. Strong AUD demand followed the positive news out of Germany with regards to the ESM, and the FED's announcement of its third round of QE. Interestingly the Momentum waned late on friday and current levels are now over 100 points from the highs. The two opposing forces of weaknening global growth and the central bank stimulus look to continue to provide volatility in the short term at least. Given the lack of follow through on the move above 1.0600, further tests to the downside look likely.
Current Level Support Resistance Last week's range
AUD/USD 1.0526 1.0430 1.0630 1.0318 -1.0625
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This pair has seen mixed fortunes over the last week. The AUD saw two periods of strong demand following the release of the postive German court decision over the ESM, and the FED's QE3 announcement. The pair hit the AUD highs fro the week following the FED announcement, but the AUD was unable to hold onto its gains. Given the AUD's inability to consolidate back at higher levels, it remains vulnerable to further weakness. The focus in Australia this week is Tuesdays release of the RBA monetary policy meeting minutes. In the UK the inflation numbers are released Tuesday, BOE monetary policy meeting minutes Wednesday, and retail sales numbers on Thursday.
Current Level Support Resistance Last week's range
AUD/GBP .6487 .6350 .6550 .6448 - .6543
GBP/AUD 1.5415 1.5270 1.5750 1.5284 -1.5500


Last week was very interesting for this pair. Demand was evenly matched for the majority of the week. This saw the passing of the German court decision on the ESM and the FED's announcement of QE3 with relatively change in pricing. However late on friday we saw a peiod of sustained underperformance by the AUD. The EURO remains in demand as the systemic risks have dramatically reduced in the last two weeks. The AUD remains vulnerable to lower global growth forecasts and particulary lower Asian growth. Initial support for the pair comes in at .8000 (resistance 1.2500) on any further AUD weakness.
Current Level Support Resistance Last week's range
AUD/EURO .8018 .7950 .8150 .8005 - .8157
EURO/AUD 1.2472 1.2270 1.2580 1.2259 -1.2492


The price action for this pair was relatively passive ahead of the FED's announcement of their QE3 program. The pair jumped from 80.70 to 81.50 and before jumping again to the highs of the week just above 83.00. The AUD has opened the week lower as the focus comes back to that of the global growth story. The Australian focus for the week is wednesdays release of the latest RBA mnonetary policy meeting minutes on Tuesday. Of largest importance for this pair this week is wednesdays BOJ monetary policy annoncement. Expect further stimulus from the BOJ in an effort to boost growth(and lower the JPY).

Current Level Support Resistance Last week's range
AUD/YEN 82.38 81.50 83.50 80.66 - 83.08



The AUD saw some solid demand against the CAD last week. The positive wider market sentiment droive the appreciation following the positive German court decision, and the FED's announcement of its 3rd QE program. However the pair remains in familar territory, and the has opened the week with the AUD under some renewed pressure. As the focus returns to  the economic data, expect the AUD to see renewed pressure as the numbers coming from Australia's important Asian trading partners continue to soften. The wider 1.0070/1.0270 range should contain the price action this week.
Current Level Support Resistance Last week's range
AUD/CAD 1.0214 1.0070 1.0270 1.0072 -1.0272