NZD
The New Zealand Dollar was hit with a triple whammy of negative news last week.  First up was the quarterly survey of Business Opinion results out for the December quarter, the results were dreadful and clearly showed that the economy is yet to find a base.  Firm’s experienced and expected trading activity fell to the lowest levels since at least 1970.  Profit expectations have slumped and investment intentions have tumbled, with the lowest net number of firms intending to invest in buildings since 1991, and the highest number of firms intending to cut back on plant and machinery investment since at least 1975.  Then came the S&P announcement on Wednesday that NZ was being placed on negative credit-watch joining illustrious counter parts such as Greece, Portugal and Spain.

House sales for December in seasonally adjusted terms rose by 26.8 percent and the median number of days to sell rose 2 days to 49.  The median house price fell to $328,500 from $337,500.

In this environment there is naturally more pressure on monetary policy to provide near-term relief, 100 basis point cut is expected for the interest rate decision at the end of this month.

AUD
News out in Australia was a little better than the data out across the ditch last week.  The number of housing loans for owner occupation rose 1.3 percent in November, which followed a 1.4 percent increase in October.  The outcome driven by a 9.8 percent increase in new dwellings and a 1.1 percent gain in established dwellings.  While investors have withdrawn from the housing market, owner occupied demand remains solid, helped by the aggressive interest rate cuts and further Government support for first-home buyers, first home buyers accounted for 23.6 percent of all owner-occupied loan commitments in November (up from 19.5 percent in October), the highest percentage since January 2002.

Also out last week the unemployment rate is up from a low of 3.9 percent in February 08 to 4.5 percent at the end of last year.  Economists are forecasting the unemployment rate to rise to 6.0 percent, a forecast rise of 0.1-0.2 percent per month in the rate this year.

The week ahead:

NZD
Tuesday 20th – NZ Food Prices (Jan) mom, Consumer Prices (Q3) qoq and yoy
Wednesday 21st – Retail Sales (Nov) mom
Thursday 22nd – NZ Card spending (Dec)

AUD
Wednesday 21st – Westpac Consumer Confidence (Jan)
Thursday 22nd – Consumer Inflation Expectation (Jan)
Thursday 23rd – Import and Export price index (Q4) qoq

GBPNZD
Despite comments from the British Chamber of Commerce that the current economic climate in the UK is ‘frightening’ the pound continued to strengthen against the New Zealand Dollar last week.  There was a considerable amount of movement last week in the GBPNZD pairing, the rate starting the week just above the GBPNZD 2.55 level and climbed steadily to a peak on Thursday evening a fraction above the GBPNZD 2.75 level.  The rate then traded down to close on Friday in the GBPNZD 2.70’s.  This week with data out in New Zealand likely to be just as negative as last week Sterling could continue its climb and possibly sit tight in the mid GBPNZD 2.75’s.

The week ahead in the UK:
Monday 19th – Rightmove House Prices (Jan) mom
Tuesday 20th – CPI (Dec) mom, yoy
Wednesday 21st – Bank of England Minutes, Jobless Claims Change (Dec), ILO Unemployment Rate (Nov)
Friday 23rd – GDP (Q4) qoq and yoy, Retail Sales (Dec)

GBPAUD
The Australian Dollar managed to stand its ground against Sterling more so than the New Zealand Dollar did last week. The rate began the week at GBPAUD 2.1674 on Monday and despite the poor unemployment data out in Australia the Australian Dollar managed to bring the rate below the 2.16 level for a brief amount of time on Wednesday.  From there it handed all movement back over to Sterling which pushed the rate up to the peak of the week on Thursday of GBPAUD 2.2241 it then remained above the 2.20 level on Friday.

This week with an even spread of data out in both the UK and Australia it could be likely that Sterling will hold onto most of the ground gained against the Australian Dollar but might not gain the momentum needed to push the rate much higher than the GBPAUD 2.20 level.  For data out in the UK this week please refer to GBPNZD above.

EURNZD
Last week the ECB cut interest rates by 50bps to 2.0 percent, their lowest level since 2005.  In Trichet’s statement, the risks to price stability were described as ‘broadly balanced’ while the risks to growth were seen as on the downside. He also claimed that the rate cut incorporated the latest data, especially from surveys which have been universally pessimistic, and that the slowdown in turn reflected an intensification and broadening of financial turmoil.

The cut in the interest rate in the Euro zone did nothing to deter the Euro from climbing against the NZD last week.  The EURNZD commenced the week on Monday at 2.3036 to then climb up to the peak of the week on Thursday evening of 2.4674, it lost a little bit of ground on Friday and closed in the EURNZD 2.43’s.

With the Euro having gained over 10 cents on the New Zealand Dollar last week that kind of movement might hard to mimic again this week, as a conservative estimate one might think that the rate this week will hover in the GBPAUD 2.38 – 2.42 band.

The week ahead in the Euro zone:
Monday 19th – Construction output (Nov)
Tuesday 20th – Germany ZEW Survey (Econ sentiment) Jan
Wednesday 21st – ECB’s Trichet Speaks in Brussels, Germany produce prices (Dec) mom
Thursday 22nd – Industrial new orders (Nov) mom
Friday 23rd – PMI Manufacturing (Jan)

EURAUD
The EURAUD pairing was no different from others pairings last week in that the commodity currency took a battering.  On Monday the rate was in the low 1.93’s, the Euro then pushed the rate up into the 1.99’s until a slight dip in the Australian Dollars favour on Wednesday back into the EURAUD 1.95’s and that is where the rate closed on Friday.

This week we may continue to see the Australian Dollar put up a fight and contain the rate to the 1.95 – 1.98 band.  For data out in the Euro zone please refer to the EURNZD rate above.

NZDUSD
Fed Chairman Bernanke spoke in London last week on “The Crisis and the policy Response”.  He warned that a huge fiscal stimulus would not be enough to drive an economic recovery unless there were further strong measures put in place to stabilise and strengthen the financial system.  In recent weeks, the size of Obama’s stimulus package has been put at $775bn.

On the data front, retail sales crashed in December, falling 2.7 percent after a revised 2.1 percent fall in November.  Sales have now declined for six consecutive months.  The poor state of manufacturing was again highlighted last week.  Although the Empire manufacturing index improved to -22.2 in January from -27.88, and the Philadelphia Fed manufacturing index rose to -24.3 in January from -36.1, both series still point to a significant contraction in activity.  Conditions are likely to remain poor for some time, until the fiscal and monetary stimulus kicks in.

Despite the extremely poor economic backdrop in the US the New Zealand Dollar took a battering from the USD last week and we saw the rate reach the lowest it has been since the beginning of December.  On Thursday evening hitting its lowest point of the week of NZDUSD 0.5286, the NZD made up some ground on Friday and the rate closed in the 0.54’s. This week we might see the rate stabilise for the time being and range trade in the 0.54 -0.55 band.

The week ahead in the US:
Thursday 22nd – NAHB Housing Market Index (Jan)
Friday 23rd – Housing Starts (Dec), Building Permits (Dec)

AUDUSD
In a similar capacity as the NZDUSD rate the movements were predominantly in US Dollars favour.  The USD pushing below the 0.70 level, the rate had been trading above AUDUSD 0.70 for the past month.  At its lowest point the rate hit AUDUSD 0.6573 on Thursday evening, it climbed slightly and closed on Friday in the 0.67’s.

This week movements might be on a smaller scale but continue to be in USD’s favour, we may see the rate continue trade in the 0.67 -0.69 band.  For data out in the US please refer to the NZDUSD rate above.

AUDNZD
Last week the New Zealand Dollar took a hammering and it was no different against the Australian Dollar.  The rate was in the 1.18’s at the beginning of the week it then climbed steadily into the 1.23’s where it remained on Thursday and Friday.

While last week New Zealand was being placed on negative credit-watch, at the same time the outlook for the US, Australia and others was affirmed as stable.  The latter merely reinforces the widening gap between NZ and Australian fundamentals and this could just lead to the rate continue up into the 1.25’s in the short term.

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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.

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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.