Foreign Exchange - UK Daily Update - Written by giles on Monday, June 30, 2008 22:34 - 0 Comments
World First NZD/AUD Weekly Update - 30th June
NZD
Last week provided final confirmation of what the partial and confidence indicators had been telling us since the start of the year – that economic activity went backwards in the first quarter of 2008. While the -0.3 percent outturn for the March quarter GDP was in line with both the market’s and the RBNZ’s expectation, there is nothing in the GDP report that gives us any comfort about the state of the economy going forward. A July interest rate cut still looks dependant on the Q2 inflation figures, and the inflation stories remain problematic, particularly when you see international oil prices at US$140/bbl.
Data released last week on the New Zealand front: Credit card spending (May) seasonally adjusted spending fell 1.1 percent, following a 4.4 percent rise in April. The Westpac Consumer Confidence (June quarter) index fell from 96.5 in the March quarter to 81.7 in June – the lowest level since 1991. Balance of Payments (March quarter) the annual current account deficit improved to 7.8 percent of GDP, from 7.9 percent of GDP in the December quarter.
Given the near-term growth outlook, tumbling consumer confidence, troubles occurring in the finance company sector, we cannot rule out the RBNZ cutting interest rates in July.
Risk aversion is increasing as global credit concerns resurface and equity markets are back under pressure as the combination of credit and inflation worries see the earnings outlook for many companies downgraded. The NZD should continue to trade with a heavy bias. Further falls against the EUR, GBP and AUD are likely as markets contemplate interest rate hikes in those countries (with the ECB and RBA announcing decisions this week, with the former expected to hike)
This week a lack of local data is likely to mean that offshore sentiment will be the dominant driver of the NZD.
AUD
A private measure of Australian inflation jumped to new highs in June as households paid more for petrol and rents. Automotive fuel jumped by about 25 percent in the year to June, while the cost of renting increased by over 14 percent. The TD Securities-Melbourne Institute monthly inflation gauge rose 0.5 percent in June, after a 0.3 percent increase in May. Annual inflation accelerated to 4.8 percent, from 4.5 percent, the highest in the five-year history of the series.
Based on the inflation gauge for June, it is estimated that the government’s consumer price index (CPI) would rise by a hefty 1.28 percent in the second quarter. That would push the annual pace of inflation up to 4.3 percent, from an already high 4.2 percent in the first quarter.
The Reserve Bank announces its interest rate decision on Tuesday and we expect no change to the current cash rate of 7.25%.
The week ahead:
NZD
Monday 30th – NBNZ Business Confidence
3rd July – ANZ Commodity Price
4th July – New Zealand Tax Receipts for May
AUD
30th June - Private Sector Credit (June) mom
1st July – RBA Interest Rate Announcement and RBA Commodity Index SDR (June) – yoy
2nd July – Retail Sales (May) mom and Building approvals (May) mom
3rd July – Trade Balance (May)
GBPNZD
The New Zealand dollar rebounded slightly at opening today after a slump on Friday in the face of soft GDP data. The data was no worse than economist’ forecasts and some believe the second quarter growth will be worse than the first but with the second quarter almost ended, the worst may be nearly over which last week prompted Westpac economist Dominick Stephens to say; ‘We’ve probably lived through the absolute worst of this recession’.
Last week in the UK the Rightmove housing survey showed prices falling by 1.2% in June, the annual growth rate slowing from 2.2% to 0.1%. Continuing on from the strong retail sales for May the June CBI Distributive Trades survey also came in above expectations for the UK. However, the underlying trend remains weak and the balance still indicates more retailers are experiencing falling rather than rising sales in contrast to the official retails sales data.
The NZD depreciated against the GBP steadily last week opening on Monday in the late GBPNZD 2.58’s to hit a peak of GBPNZD 2.6354 after the GDP announcement. The NZD has held tight and regained back some ground on the Sterling opening trading today at GBPNZD 2.613. This week in the UK on Monday is the GFK Consumer Confidence Survey (June), on Tuesday the Nationwide House prices (June) – and on Wednesday the PMI Construction data for June released. With data fairly light on the NZ front we could see the GBPNZD trade towards the lower end of GBPNZD 2.59 to GBPNZD 2.62.
GBPAUD
Last week the GBPAUD range traded between the GBPAUD 2.056 and the high of the week GBPAUD 2.08. This week’s big event in Australia is the RBA’s interest rate announcement, the RBA is expected to leave rates unchanged at 7.25 percent and it really just remains a case of waiting for the June quarter CPI release to assess how inflation pressures are tracking. The CPI release is expected to be the smoking gun that will force the RBA to hike rates again in August. Over in the UK the BoE is concerned about the continuing private credit tightening and housing market decline. MPC member Sentance has reiterated Governor King’s position that the MPC will raise the cash rate if wage demands run too high, but otherwise that it seems the Committee is happy to bide its time for now. Similarly as with the GBPNZD if nothing unexpected results from the RBAs Interest Rate Announcement a continuation with the same range being traded is more than likely to be the case.
EURNZD
PMI figures for the Eurozone on Monday showed that the manufacturing and services sectors are feeling the pain as inflationary concerns continue. This was also made clear in a poor Gfk German Consumer Confidence reading that was released on Tuesday morning. The index dropped to a 2 year low as German consumers reported that increases in the price of food and petroleum products had them worried. Trichet was very hawkish in his testimony to a European committee on Tuesday signaling that there is a good chance we could see a raise in interest rates at the Thursday meeting this week. With the absence of data from New Zealand and the possibility that the market has already priced in an increase in the interest rate may see the EURNZD continue to sit up above the 2.05 level but just shy of the highs of last week of EURNZD 2.08’s.
EURAUD
Once again this week we saw the EURNZD and EURAUD rate move in a mirrored fashion. The EURAUD rate continually climbed in EUR favour starting the week in the EURAUD 1.629’s and steadily rising to the high of Friday at EURAUD 1.649 which is the highest the rate has climbed since the middle of May where the rate had a brief visit to EURAUD 1.658. Considering that the EUR gained a couple of cents on the AUD last week we could see the EUR maintain the ground gained with a possibility of gaining further leading up to Thursday’s interest rate decision.
NZDUSD
Consumers throughout the world are lacking confidence at the moment. It was America’s turn last Tuesday. The conference Board’s measure fell to 50.4, a level not seen since 1992 and the fifth lowest reading of all time. Comments that accompanied the release stated that the ‘economy remains stuck in low gear’ but that confidence ‘may be nearing the bottom’. On Wednesday The Fed held rates at 2.0% as expected however the accompanying comments were taken as negative. The tone of the release was nowhere near the hawkish manifesto that some expected and as such the chance of a hike in August has dipped from 48% to 33%. This along with an intensification of credit concerns, has seen the USD give back some of its recent gains on the NZD. The NZDUSD rate averaged at 0.757 last week, trading between the narrow range of 0.755 and 0.76 and opening this morning at 0.761. The coming weeks trading will be dominated by the US data – the main feature of which will be the Non Farm Payrolls for June released on Thursday. Obviously a continuation of the negative US data should see the NZD gain further this week.
AUDUSD
The AUD is continuing on its upward trend on the USD having being steadily increasing since the middle of June, gaining three cents since that time. The Federal Reserve’s Statement following its FOMC meeting this week seems to have contributed into a relapse in investor pessimism and has been followed by a sharp sell-off in the US dollar, a jump in prices of oil and gold and a big drop in the stock market. With the interest rate announcement in Australia on Tuesday expected to remain unchanged the rate is likely to concur with that and remain trading in the AUDUSD 0.95 – 0.96 band.
AUDNZD
Last week the AUD hit the highest level it has seen against the NZD since 2001. The commodity rich country is thriving off the back of New Zealand’s run of negative data reaching the high of the week on Friday AUDNZD 1.267, the rate moving up to meet the poor GDP data released in New Zealand. ABARE, the Australian Government’s commodity forecaster, released its latest outlook for commodities in 2008-09. Its forecast is for a 40% increase in commodities export earnings to a new record, $212bn. Minerals and energy exports are forecast to rise 48% to $178bn. Again with data light in New Zealand and the AUD having gained on the NZD last week the AUDNZD rate could be a bit of a non mover sitting around 1.25 – 1.265.
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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.
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