NZD
Economic conditions seem to be on the slight up and up in New Zealand in light of the data released last week. The Roy Morgan Consumer Confidence index rose from 94.9 in mid-August to 107.3, this data being further evidence of stabilisation as this rebound took consumer confidence to its highest level since early March of this year.  In the Wholesale Trade Survey for the June quarter sales rose 3.1 percent and stocks rose 6.2 percent.  Also the ANZ Commodity Price Index (August) was up 2.0 percent, largely attributed to a lower NZD.

In negative data out, seasonally adjusted Auckland house sales fell by 19 percent in the month of August and house prices in New Zealand as a whole are down 4.5 percent on a year ago.

Major focus last week was the key development we were seeing on the currency front.  Increased risk aversion has seen the NZD sold down heavily, falling over 5 percent against the USD alone.  From a monetary conditions perspective, the lower NZD suggests the RBNZ is now under less pressure to loosen monetary policy.  In July they did make reference to only being able to cut rates if the currency did not fall too far. This aside, market consensus is that the Reserve Bank of New Zealand will deliver another relatively cautious statement, highlighting the challenging environment currently for policy making and cut the Official Cash rate by 25bps on Thursday this week.

AUD
The Reserve Bank of Australia made their first rate cut in almost seven years last week, the official cash rate was reduced from 7.25 percent to 7.00 percent.

Building approvals resumed their downward path in July, falling 2.3% (consensus +0.5%) after the revised 2.2% rise in June.  Approvals are down 3.7% over the past year.  Private sector houses fell 3.4% in July while multi-unit dwellings fell 2.3%.  The biggest falls for private houses were in Victoria (-7.2%) and QLD (-6.6%).

GDP for the June quarter came in with a reading below the median forecast of 0.4%, at just 0.3% in the quarter.  Annualised this would say that the economy grew at a 1.2% pace.  Very soft, given that the potential rate of growth of the Australian economy is around 3.25%.
A re-balancing of activity continues to unfold in the Australian economy.  Private consumption and the household sector will be relatively weak and imports will slow (although not capital equipment) ahead while mining, construction, agriculture and exports will be relatively strong.

Provided the run of data continues to show ongoing economic weakness, it seems the RBA has commenced its easing cycle and will be likely to cut rates by 25 bps at its October Board meeting.

The week ahead:

NZD:
Monday 8th – QVNZ House Prices
Wednesday 10th – Terms of Trade Index (QoQ)
Thursday 11th- RBNZ Official Cash Rate
Friday 12th – Retail Sales (MoM)

AUD:
Tuesday 9th – NAB Business Confidence/Conditions, Housing Finance Approvals, Retail Sales
Wednesday 10th- Westpac Consumer Confidence
Thursday 11th –Unemployment/Participation Rate

GBPNZD
With more data being released in the UK last week Sterling was the currency making the gains.  The rate opened on Monday at GBPNZD 2.5858 Sterling gaining some ground over the NZD and the rate climbing on Wednesday to 2.6256 continuing upwards to the peak of the week on Friday in the early GBPNZD 2.65’s.

The major announcement of last week was the interest rate decision in the UK, as widely expected Mervyn King and the MPC held interest rates at 5%.  The housing market is at the centre of the weakness of the economy and continues to deteriorate.  Mortgage approvals fell further in July to 33k from 35k to a new record low, mirroring the slowing of lending across the business sector.  UK banks have clamped down especially heavily on mortgage lending in the wake of the credit crunch.  In other housing news, Halifax building society showed that house prices have fallen by 10.9% on a year by year basis.

This week the ball is in New Zealand’s court with the Reserve Bank announcing its interest rate decision on Thursday.  The Reserve Bank is expected to cut interest rates by at least 25bp, this may trigger the rate to rise above the GBPNZD 2.65 level.

The week ahead in the UK:
Monday 8th – PPI Input m/m
Tuesday 9th – Manufacturing Production m/m
Wednesday 10th- NIESR GDP Estimate (Aug), Total Trade Balance (Jul)

GBPAUD
Despite the gloomy the outlook released in the UK last week it did not deter Sterling from making gains on the AUD.  At opening the rate was in the GBPAUD 2.11’s steadily climbing to close on Friday at GBPAUD 2.162.
With an array of data out in both countries it will be interesting to see if Sterling can maintain the ground it made from the beginning of last week against the Australian Dollar.  We might see the rate push into the GBPAUD 2.16 – 2.18 range.  For data out in the UK please refer to GBPNZD above.

EURNZD
As expected the ECB left rates on hold last week at 4.25%.  In the subsequent press conference ECB President Trichet sounded as hawkish as ever.  He gave essentially the same opening he has given since July, suggesting the ECB has absolutely no intention of easing any time soon.  Meanwhile Eurozone GDP was confirmed at -0.2% in Q2.  Euro zone retail sales fell a further 0.4% in July to be down 2.8% yoy.  This data brings increased risk of another GDP contraction in Q3.
The EURNZD rate was a little volatile last week opening at EURNZD 2.10 on Monday climbing on Wednesday to 2.14 which then retreated back into the 2.10’s and then rose again to end trading on Friday in the EURNZD 2.14’s.  Domestically with it being quite a busy week in New Zealand data wise the NZD might maintain its current levels and continue to trade in the EURNZD 2.11 – 2.13 band.

The week ahead in the Euro zone:

Tuesday 9th – Trade Balance (Jul) Germany
Wednesday 10th – ECB’s Trichet Speaks in Brussels
Thursday 11th – European Commission Releases Economic Growth Forecasts
Friday 12th – Employment (Q2) qoq, Industrial Production (July) mom

EURAUD
Last week the EUR came out on top against the AUD.  Trading commenced on Monday at EURAUD 1.715 jumping sharply on Tuesday to the mid 1.74’s, the EUR then managed to retain that gain for the majority of the week and rising to close on Friday at EURAUD 1.753.
This week we could see the AUD being put on the back foot again as the EUR may not give up its gains easily and the rate might continue to trade up in the EURAUD 1.73 – 1.75 band.  For data out in the Euro zone please refer to EURNZD above.

NZDUSD
With limited local data out last week the NZD was hostage to offshore sentiment and this resulted in some big moves in the NZDUSD rate.  From starting the week at just over 0.70 against the USD, the NZD dipped below NZDUSD 0.66 at one stage, closing on Friday at NZDUSD 0.666.
This USD strength was despite data coming out in the US being predominantly weaker than anticipated,  the Unemployment Rate (August) 6.1 percent against a forecast 5.7 percent  and the change in Non-Farm Payrolls being -84k when the market had anticipated -75k for August.  Construction spending for July also contracted to -0.6 percent against a forecast -0.4 percent.
NZD opened on the front foot this morning, following news that the US government has placed the massive mortgage providers Freddie Mac and Fannie Mae into “conservatorship”.  With the interest rate decision in New Zealand on Thursday and general trend being down for the rate during 2008 one would expect that the rate would continue downwards this week or remain in the NZDUSD 0.68 – 0.70 range.

The week ahead for the US:

Tuesday 9th – Consumer Credit (July)
Wednesday 10th – IBD Economic Optimism (Sep)
Friday 12th – trade Balance (July), Import Price Index (Aug) mom, Initial Jobless Claims (w/e 7 Sep)

AUDUSD
As with the NZDUSD rate the USD appreciated against the AUD last week.  Commencing the week at AUDUSD 0.85 and falling 4 cents to close on Friday at AUDUSD 0.81.  Since the middle of July the AUD has taken the back foot to the USD and we have seen it fall 17 cents in that time.  Following the trend the week ahead we could see the rate continue to push towards the AUDUSD 0.80 level.

AUDNZD
The AUDNZD rate has remained rather constant over the past few weeks and last week was no exception.  The rate opened trading last week at AUDNZD 1.221 and continued to range trade between 1.215 and 1.225.  With the interest rate decision in New Zealand on Thursday and data out in Australia the latter part of the week the rate might see some movement possibly in Australia’s favour and push up to the AUDNZD 1.23 level and higher.

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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.