NZ/Aus/S. Africa - Weekly Update - Written by giles on Monday, June 16, 2008 22:50 - 0 Comments
World First NZD/AUD Weekly Update - 16th June 2008
NZD
The NZD was one of the worst performing currencies last week, falling 1.8% against the US Dollar and nearly 3% against the AUD. As history tells us, the NZD does not stay high in a weak growth environment and with the current economy the headwinds for the NZD are likely to intensify. Particularly as there is potential for the March quarter GDP (due at the end of June) to be negative and June quarter GDP is shaping as no better. After the RBNZ’s change in stance, and its acknowledgment that the economy is slowing sharply and is to remain subdued for some time the NZD was seen last week to pre-empt an interest rate easing cycle.
Keeping the NZD afloat last week was the stronger than expected merchandise terms of trade results released last Wednesday, which has continued its impressive rise over the March quarter and is the highest since the first quarter of 1974. However, it was reported last week, that construction activity contracted over the March quarter. An early Easter would have exaggerated the decline, but building consents data point to further declines in residential construction activity ahead. Weaker than expected retail sales data were released on Friday, with Retail Sales (MoM, ex-auto) down 0.5% versus 0.2% expected.
All this being said and done if the NZD is to depreciate further in value the market will need to see the RBNZ’s intention of creating a cycle of interest rate cuts rather than just one. In reality the RBNZ may not be able to lower interest rates as quickly as has been suggested, given their lack of inflation headroom.
AUD
The Australian economy took a couple of unexpected blows this past week with results not as shiny as forecasted. According to the Melbourne Institute, consumers are becoming convinced that high inflation is here to stay, leading on from Inflation Expectations of consumers rising from 5.2% last month to 5.9% in June.
Housing finance approval loan numbers for owner occupation fell 3.0%, a touch softer than expectations. The third decline in the past four months and back to the lowest levels of total approvals since November 2006.
After a continuous 18 month run of employment growth (last fall being in October 06) there was an unexpected surprise; employment falling by twenty thousand in May. Up until May, employment growth had been averaging 25k per month in 2008. The slowing in employment growth is consistent with the slower growth in economic activity seen in recent quarters. This result is more evidence for the RBA to keep interest rates on hold.
The week ahead:
NZD
Monday 16th - Economic Survey of Manufacturing (March quarter). The business NZ manufacturing PMI has begun to trend lower, this is expected to also show up in this survey.
Friday 20th – External Migration (May) Monthly net inflows look to have stabilized around 300-400 people. This is expected this to continue for the foreseeable future.
AUD
Tuesday 17th - RBA Minutes from June Meeting
Wednesday 18th – Preliminary BoP Imports (May) last time was down 3%.
GBPNZD
Continuing the trend from the week before GBPNZD continued to trade at the highs for 2008 last week. Previously we had seen the GBPNZD range trading between 2.48-2.55, however we have now broken higher and last week we moved up to 2.57 – 2.60. After the PPI results on Monday were a lot more positive than anticipated for the UK, Sterling maintained its strength for the rest of the week. The New Zealand economy is forecast to soften and this was reinforced by the poor Retail Sales figures released on Friday. This week data wise NZ is light with all eyes on the UK as CPI and Retail Sales figures are released (Tuesday 17th and Thursday 19th respectively) - a strong figure from either could see GBPNZD 2.6+ tested. Likewise if it goes the other way we might see the rate trade back down a fraction into the mid 2.5’s. Other UK data of note is the Bank of England’s minutes for June’s interest rate meeting out on Wednesday 18th.
GBPAUD
The Sterling rallied to GBPAUD 2.08 on the results of Monday’s better than expected PPI data in the UK, taking the rate to the top end of its current trading band and a level we haven’t seen since mid May this year. Any further gains were halted in the run up to Thursday’s employment data in Australia which was anticipated to come out strong. However the Australian data came out weaker than expected but Sterling failed to break the upper levels of the current band and remained in the 2.07’s for the rest of the week. Again as with the NZD if we see positive results back from the UK’s CPI and Retail Sales data this week we hope the rate to test the 2.08 resistance level.
EURNZD
Last week the Euro maintained its strength against the NZD pushing to the highest level we have seen since May 2006. For the duration of the week the rate traded between 2.047 to 2.063. Locally for the week coming, the dataflow is all relatively second-tier in nature and unlikely to get too much action in currency markets. However we do have some key economic indicators coming out of the Euro zone – the majority of data coming from Germany. First up is the ZEW Survey (Economic Sentiment) released on Tuesday with the market expecting a lower figure than last month and on Friday the German Producer Prices Index (May) is released. Other data of note is Tuesday’s European Monetary Union Trade Balance for April. Obviously if the figures coming out of the Euro zone are better than expected we will continue to test the highs, if not we are likely to see a slight decline back towards EURNZD 2.00.
EURAUD
The last two weeks have seen the EUR gain back about 2% on the AUD – having hit the low since the early part of 2008 on the 4th June (1.608). Last week saw it range between these new higher levels of 1.63 and 1.65. The gains are mainly due to Trichet’s message of an interest rate hike in the Euro zone in July and inversely the negative employment figures that were seen in Australia at the end of last week. However with the prospect of this weeks data in Europe coming out flat or possibly even negative (see EURNZD above) we may not see any further gains in the short term.
NZDUSD
We continued to see a weakening in strength of the NZD against the greenback last week. Dropping to 0.749 on Friday – that was around its lowest level since January, apart from a brief dip lower 3 weeks ago. Total sales at US retailers rose 1% in May, strong consumer spending, despite higher petrol prices and deteriorating wealth from falling house prices, will allow the Federal Reserve more latitude to raise US interest rates to stem inflation. With Retail Sales results not strong enough to break the NZD back above the 0.755 the week ended with the NZD on the back foot at 0.749. There is a substantial amount of data being released from the US this week, notably on Tuesday 17th the NAHB Housing Market Index, Wednesday 18th Current Account Balance, PPI (May), Building Permits (May) and Industrial Production (May) data is out and finally on Friday 20th figures for the Initial Jobless claims data for the week ending June 15th will be released.
AUDUSD
The USD had ended last week with its best week against a basket of currencies since 2005 as mounting inflation fears had investors bracing for Federal Reserve interest rate hikes this year. Analysts are now expecting the greenback to dip after the weekends meeting of G8 finance ministers in Japan, did not discuss currencies. The AUD opened a little stronger today climbing back a fraction from the low 0.93s the market saw last week.
NZDAUD
Last week saw the NZD dip to around 0.7930 (1.2610), the lowest level against the AUD since November 2001. After the poor results showed the employment level in Australia falling sharply in May, snapping a 19 month growth spurt, that has helped ease thoughts of the RBA hiking interest rates. These results enabled the NZD to gain back a little bit of ground and to continue to trade between the 0.8038 (1.244) and 0.80 (1.25) levels on Thursday. For this week in both Australia and New Zealand data is light so we could expect to see the same levels being traded at or the AUD might depreciate slightly as the poor unemployment figures filter through.
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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.
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