NZD
Less than a week after delivering the largest OCR cut in history, RBNZ Governor Bollard took the opportunity to remind everyone in a speech that inflation isn’t dead and buried. He noted that while “for some commentators, concerns over inflation appear to have taken a back seat”, inflation remains “very high”, and the RBNZ “need to see inflationary pressures reducing significantly across the board, if we are to keep on easing monetary policy”. A pretty clear statement indeed!

Recent local data out last week was in keeping with the past weeks and continues to paint a picture of that of a slowing economy.  In September real residential building work put in place fell 7.9 percent, while non-residential building work rose 5.8 percent.  Also not surprisingly food prices rose 0.8 percent in November and are up 10.3 percent from a year ago.  In seasonally adjusted terms, house sales fell 13.1 percent, median days to sell fell to 47 days, and the medium house price rose slightly to $337,500.   Retails sales for October were also down, headline sales fell 1.3 percent, driven by a 14.5 percent fall in car sales.  Core spending rose a modest 0.8 percent.

With the New Zealand economy contracting over the first half of 2008, the outlook is subdued to say the least.  Firm’s activity expectations, investment and employment intentions are at, or close to historical lows.  Residential building consents have collapsed to early 1980s lows – a remarkable feat considering the economy is now close to twice as large.  Consumer confidence looks perkier, but the disconnect between business and consumers appears to reside in the still low unemployment rate, which going by forward indicators, is set to rise rapidly in the New Year.  This means ‘round two’ for the housing market, that for the past couple of months did look like it was finding a base of sorts.

AUD

Last week in Australia the government added to the fiscal stimulus by announcing additional measures designed to boost demand in the economy and to re-ignite some confidence in the outlook.  An increased investment allowance for business and a tax deferral for small business were the key elements in the package.

Along with the Reserve Bank of Australia Board Minutes this week Australia has some second tier data out.  Among the data out is dwelling starts, which might provide some clues on whether the enhanced First Home Owner’s Scheme and lower rates have piqued interest in new homes.

The week ahead:

NZD
Monday 15th – Manufacturing activity (Q3) qoq
Thursday 18th – NBNZ Business Confidence (December)
Friday 19th – Visitor Arrivals (Nov) mom, Credit Card Spending (Nov) yoy

AUD
Tuesday 16th – RBA Board December Minutes, Dwelling Starts (Q3)
Wednesday 17th – Westpac Leading Index (Oct) mom, DEWR Skilled Vacancies (Dec) mom, Preliminary BoP Imports (Nov) mom
Thursday 18th – RBA Foreign Exchange Transactions (Nov)

GBPNZD

The fall in UK inflation is expected to continue in November, with the market looking for a 0.3 percent decline in consumer prices, which should take the annual rate from 4.5 percent to 3.9 percent.  We suspect that the risks could be on the downside given the fall in petrol prices that month.  In some ways, November CPI has been diminished by the 2.5pp cut in VAT from December.  The VAT cut is enough to push down CPI by 0.9 percent on the month and ensures that UK inflation will fall quickly over the next few months.

Other data out in the UK this week is likely to confirm the slowdown in the fourth quarter with retail sales expected to fall by 0.7 percent, while government borrowing seems likely to drift higher as tax revenues continue to fall.

Last week the rate bounced between the GBPNZD 2.70’s and 2.75, closing on Friday in the 2.73’s.  This week with more data flow out in the UK than in New Zealand we might see the rate continue in the same band with Sterling possibly pushing the resistance level and rising above 2.75.

The week ahead in the UK:

Monday 15th – Rightmove House Prices (Dec) mom
Tuesday 16th – CPI (Nov) mom and yoy
Wednesday 17th – Bank of England Minutes, Jobless Claims Change (Nov), ILO Unemployment rate (3 mths) (Oct)
Thursday 18th – Retail Sales (Nov) mom, Public Sector Net Borrowing (Nov)
Friday 19th – GfK Consumer Confidence Survey (Dec)

GBPAUD

This paring was equally unexciting last week, the rate predominantly meandering between GBPAUD 2.23 and 2.27 with the sharpest move coming from the Australian Dollar on Thursday pushing the rate for a brief period below the GBPAUD 2.21 level.  This week the ball could remain in the Australian Dollars court and we could see the rate continue its sluggish decline towards the GBPAUD 2.20 level.  For data out in the UK this week please see GBPNZD above.

EURNZD

A fairly light week in the Euro zone sees the advance estimates of manufacturing and service sector PMIS for December published.  The market is looking for both indices to fall further, reflecting the sharp slowdown in economic activity in the fourth quarter.  That slowdown is also likely to be reflected in the German Ifo survey for December.  The earlier ZEW survey did show some consolidation in expectations (from a very low level), but the market is expecting all components of the Ifo survey to drift lower.

Despite poor data coming out in the Euro zone the Euro is dominating the movements in the EURNZD rate at present.  The EURNZD rate opened last week in the 2.36’s and climbed throughout the week to close on Friday in the 2.42’s.  If we were to follow the trend of the past couple of weeks we would forecast the rate to continue to climb in the Euros favour this week and possible push past the EURNZD 2.45 level.

The week ahead in the Euro zone:

Tuesday 16th – PMI Manufacturing, Employment (Q3) qoq, Germany PMI Manufacturing (Dec)
Wednesday 17th – CPI (Nov) mom and yoy
Thursday 18th – Germany IFO Business Climate (Dec), Europe Trade balance sa (Oct)
Friday 19th – Germany Producer Prices (Nov) mom

EURAUD

As with the EURNZD rate last week the Euro went from strength to strength against the Australian Dollar for the entirety of last week.  Opening on Monday the rate was in the EURAUD 1.93’s it then climbed steadily all week and had a substantial spike above the EURAUD 2.0 level to close on Friday in the 2.01’s.  As with the EURNZD rate, this week could again belong to the Euro with the rate possibly making advancements up towards the EURAUD 2.05 level.  For data out in the Euro zone please refer to EURNZD above.

NZDUSD

More bad news in the US economy.  US non-farm payrolls (November) showed a fall of 533k, much worse than consensus of -335k and the biggest fall in employment since 1974.  A whopping 1.55mn US workers have lost jobs in the past six months.  Unemployment jumped to 6.7 percent from 6.5 percent, all in all it is a sign that the US labour market is well and truly in a rapid job shedding phase.

This poor news and sentiment was reflected in the rate last week with movement coming from the New Zealand Dollar camp making gains from opening in the NZDUSD 0.53’s and the rate then moving up towards the NZDUSD 0.55’s by the end of the week.  This week could be a continuation of the movements of last week and the NZDUSD rate could be north bound towards the NZDUSD 0.57 level.

The week ahead in the US:

Tuesday 16th – Industrial Production (Nov), NAHB Housing Market Index (Dec)
Wednesday 17th – Consumer Price Index (Nov) mom, Housing Starts (Nov), Building Permits (Nov), FOMC Rate Decision
Thursday 18th – Current Account Balance (Q3)
Friday 19th – Initial Jobless Claims (w/e Dec 14)

AUDUSD

The USD fell sharply across the board this week sending AUDUSD surging to a one month high of 0.6801 after spending the past fortnight broadly trading between 0.6100 and 0.6600 band.  The USD may be starting to lose some of its earlier appeal as a ‘safe haven’.  The US Dollar could find 2009 a tougher year thanks to the US budget deficit climbing to at least US $1 trillion at the same time that interest rates fall close to zero and the Federal Reserve ramps up “quantitative easing’ (increasing the money supply), while external funding needs to remain elevated.

Movements in the AUDUSD rate this week one might expect to continue favourably for the Australian Dollar as risk aversion levels have settled and we could see the rate push up to the peak of last week of AUDUSD 0.68.  For data out in the US please refer to NZDUSD above.

AUDNZD

Last week we saw the New Zealand Dollar claw back some of the gains from the AUD reaching the low of the week on Friday of AUDNZD 1.1995.  The strength in the New Zealand Dollars favour could be short lived and this week the ball could be back in the Australian Dollars court with movements possibly leading it into the 1.22 level.

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Please feel free to contact me (renee.doughty@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar.

If you would like to discuss your foreign exchange requirements then please don’t hesitate to call our Southern Hemisphere Office on our New Zealand Free phone number 0800 666114, or Australian Free phone number 1800 701540 or direct on 0064 7839 6114.

Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.
Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.