NZD

Last Wednesday’s ANZ commodity price data showed that the price of New Zealand’s export bundle fell by 4.3% (month on month) in January and that prices are now about 30% off the peaks seen in mid 2008.

Thursday’s Household Labour Force Survey (HLFS) through up mixed messages – the key data was the unemployment rate which rose to 4.6% from 4.2% however fourth quarter employment was actually up – rising 0.9% rather than the decline that the market expected.  This apparently is partly due to ‘older’ members of the community being forced back into work by rising living costs and losses sustained to retirement funds.  Despite the rise in Q4 employment almost everything else in the HLF Survey notified a slowdown.

Looking ahead to NZ data this week we expect retail sales figures to fall again putting some pressure on the NZD.

AUD

Australian House prices continued to fall in the fourth quarter with the headline house price index falling by 0.8%.  That brings about the third quarter of decline.  With a rising unemployment rate, the outlook for the housing market is not great.

Last Tuesday’s interest rate decision by the RBA saw a 100bps cut to leave rates at 3.25% (the lowest levels seen in Australia since 1960).  At the same time the Australian government unveiled another fiscal stimulus package worth around A$ 41.5 billion.  The combination of a 100bps cut (as opposed to 125bps that many traders had priced) as well as the stimulus package had an improving effect on the Australian Dollar against many of its pairs mid week.  However this was a small glimmer of positivity in an ocean of problems.  Both Australia and New Zealand are suffering in the wake of the collapse in global industrial production at the end of last year.  Subsequently we expect to see further rate cuts in the months ahead; although traders are pricing less easing by the RBA than the RBNZ.  That said many analysts believe we could see interest rates at as low as 2% in Australia by mid 2009.

The week ahead:

NZD
Wednesday 11th Feb – Food Price Index (MoM) (Dec)
Friday 13th – Retail Sales (MoM) (Dec), Retail Sales ex Autos (MoM) (Dec)

AUD
Monday 9th Feb – ANZ Job Advertisements (Jan)
Tuesday 10th – National Australia Bank’s Business Conditions (Jan)
Wednesday 11th – Westpac Consumer Confidence (Feb), Home Loans (Dec), Investment Lending (Dec)
Thursday 12th – Consumer Inflation Expectation (Feb), Employment Change (Jan), National Australia Bank’s Business Confidence (QoQ) (4Q), Unemployment Rate (Jan)

GBPNZD

The start of last week saw GBPNZD trading at 2.850 which is the peak for the year so far and the peak since October last year.  It continued to trade above 2.8 between 2.82 and 2.85 up until the end of the week when on Friday UK hours it traded down into the high 2.7’s.

According to last Tuesday’s figures released by Nationwide consumer confidence in the UK hit new lows (no surprises there).  The main data from last week was the Bank of England Interest rate decision which again went with market expectation of a 50bps cut.

This week’s Bank of England Quarterly Inflation Report due tomorrow will determine to some extent the economic outlook of the UK over the next 3 months.  Their previous release foresaw inflation staying in and around the 0.9% level should the bank rate stay fixed at 3%.  Obviously seeing as the interest rate has been slashed to lower levels this outlook is no longer viable (The National Institute’s latest forecast for UK growth has revised figures from 0.9% to -2.7% in 2009).   In view of last weeks interest rate cut we think that the Bank of England will leave rates untouched in March but will have a closer look again in April.

We have started this week at slightly lower territory ie in the high 2.7’s rather than the 2.8’s we saw last week.  We think a 2.77 to 2.84 range likely for the coming days with the pound struggling to break to higher ground unless miracle of miracles we see an abundance of positive data coming from the UK.

The week ahead in the UK:
Monday 9th – NIESR GDP Estimate (Jan)
Tuesday 10th – BRC Retail Sales Monitor – All (YoY) (Jan), RICS House Price Balance (Jan), Goods Trade Balance (Dec), Total Trade Balance (Dec)
Wednesday 11th – Average Earnings (Jan), ILO Unemployment Rate (Jan), Jobless Claims Change (Jan), Bank of England Quarterly Inflation Report

GBPAUD

GBPAUD started last week at 2.2702 which was the peak for the week.  From then on it traded in the low 2.2’s and dropped into the high 2.1’s on Friday (2.1863 being the low)

Last Wednesday’s PMI data from the UK was better than expected rising from 40.2 to 42.5 in January – this supported sterling a little mid week.  However with the interest rate cut on Thursday in the UK further ground was lost to the AUD.

For the coming days we think it unlikely that the GBP will test the highs of the current range (2.18 – 2.24) – and GBPAUD will continue to trade in the middle ground around the 2.2 mark with a possibility of downside risk if last week’s risk appetite continues.

For data out in the UK this week please refer to GBPNZD above.

EURNZD

The EURNZD pairing saw some large moves last week – starting the week at the peak for the year so far and continuing the Euros run of trading at an all time peak against the NZD (by Wednesday it had peaked to EURNZD 2.5698).  However last week didn’t go all the Euro’s way with a massive five and a half percent drop from Wednesday’s high to leave it trading in the 2.42’s on Friday.

As predicted the ECB held interest rates in the Euro zone at 2.0% but there is still a reasonable chance they will chose to cut in the March meeting.  Their post announcement press conference was a typically cautious affair which validated our view that a cut in March is probable.   The Euro’s depreciation towards the latter stages of last week could well suggest the market is pricing in a larger cut in rates in the Euro-zone over coming months.

The week ahead in the Euro-zone:
Monday 9th – Trade Balance (Germany) (Dec), Sentix Investor Confidence (Feb)
Wednesday 11th – Consumer Price Index (Germany) (Jan)
Thursday 12th – ECB Monthly Report (Feb), Industrial Production (MoM) (Jan)
Friday 13th – GDP (4Q) Germany, GDP (4Q) European Monetary Union.

EURAUD

The EURAUD pairing mirrored the EURNZD’s movements – higher at the beginning and middle of the week (EURAUD 2.0342 on Tuesday) and trading downwards towards the end (EURAUD 1.9128 on Friday).

The Euro-zones slow reaction to current problems has left many analysts pricing a larger interest rate cut in coming months than has previously been anticipated and this aided the AUD in gaining back some of the ground lost against the EUR.

In the coming week Fridays GDP fourth quarter data in the Euro-zone is of particular interest.  A drop is expected which could see the EURAUD pair trade in a similar capacity to last week ie higher at the beginning of the week but losing the Euro giving up ground to the Australian Dollar towards the end of the week.

For data out in the Euro zone this week please refer to EURNZD above.

NZDUSD

NZDUSD started last week close to breaking the mythical 0.50 level that many analysts have for a while now predicted it will move below.  However last week was another case of ‘close but no cigar’.  The lowest level was seen early in the week on Monday at NZDUSD 0.50319 and from then on it moved progressively higher to finish on Friday at 0.53243.

US data showed some improvement at the beginning of last week, although it remains very weak.  Last Monday’s ISM for the US manufacturing sector rose to 35.9 from a three decade low in December of 32.9.  However the big data for the US last week was Fridays Non Farm Payrolls which as the market expected came out weaker than previous figures.  Its unsurprising that as the week progressed and the US data worsened the rate moved against the USD however another contributing factor has to be the murmurings of a bit of a recovery in risk appetite which has seen the USD begin to be sold in favour of higher risk currencies such as the NZD or AUD.

For the coming week we expect the NZDUSD rate to trade between 0.5150 and 05350.

The week ahead in the US:
Tuesday 10th – Wholesale Investors (Dec), Washington Post Consumer Confidence
Wednesday 11th – Trade Balance (Dec), Monthly Budget Statement (Jan)
Thursday 12th – Retail Sales (MoM) (Jan), Retail Sales ex Autos (MoM) (Jan), Business Inventories (Dec)
Friday 13th – Michigan Consumer Sentiment (Feb)

AUDUSD

In a mirror of the NZDUSD rate the AUDUSD saw its lowest ebb on Monday starting last week at AUDUSD 0.6317.  The remainder of the week went with the AUD and by Friday it had gained a whopping six percent on the USD to end the week at 0.67534.

As with the NZDUSD rate the AUDUSD movements reflect a renewed appetite in risk investments largely brought about by the hope that the US stimulus plan will be passed this week.  In view of the last stimulus plan in the US not bringing about a sustained improvement in the US economy it remains to be seen if the latest proposal will.

Also helping the AUD last week was their better than expected retail sales data and the likelihood that the interest rate tightening cycle will ease over the coming months.

For the coming week we anticipate a 0.655 to 0.6850 range.

For data out in the US this week please refer to NZDUSD above.

AUDNZD

The start of last week had AUDNZD trading 1.2547 and from there the rate followed the recent trend of moving in AUD’s favour, gaining a further percent on the NZD finishing on Friday at AUDNZD 1.2680.

Despite the Kiwis currently having the lead in the one day cricket series against the Aussies the immediate future looks ever so slightly brighter on the Australian side of the water in economic terms, although I am sure many Australians would sacrifice economic outlook for sporting victory!

We think the AUD is supported enough to not see the rate dip lower than 1.25 in the near term and with the RBNZ likely to continue a more aggressive rate cutting process than the RBA we expect the exchange rate to continue for this week trading at the current mid to high 1.2 levels which are being viewed as fair value.

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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.