Foreign Exchange - Australia Weekly Update - Monday, December 1, 2008 22:02 - 0 Comments

World First NZD/AUD Weekly Update – 1st December 2008

NZD
In New Zealand Building consent issuance plummeted in October to its lowest level on record, and points to a substantial contraction in residential investment over the coming 12 months.  This will act as a huge drag on economic growth, which is unlikely to be fully offset, even with large increase in infrastructure spending by the government.  And while commercial consent issuance is still holding up (in dollar terms anyway), we wonder for how much longer.

In other data out last week the RBNZ Survey of Expectations (December quarter) one year and two year ahead inflation expectations fell 0.8 and 0.3 percentage points to 2.8 and 2.7 percent respectively.  In credit growth for October total household claims grew by just 0.2 percent in the month, down from a revised 0.3 percent in September.  NBNZ Business outlook (November) headline confidence stabilised in the month however, activity gauges remain extremely poor.

The key information out this week is the Interest rate decision and the market is split between 100 versus 150 basis points cut.  Recent falls in mortgage rates across the curve, lower petrol prices, a massive loosening in financial conditions and improved liquidity which has shaved between 25 and 40bps off interbank rates so far argue for a more conservative move.  The announcement is out this Thursday at 9am.

AUD
Economic data out locally in Australia has been mixed of late.  However, the picture emerging is one where the economy has slowed somewhat but does not appear to be about to fall off a cliff.   The construction work done report for Q3 showed that housing investment is on the rise, residential construction rose by 0.9 percent in the September quarter and is up by 2.8 percent year on year.  The terrific news was on the investment outlook.  The capital expenditure survey for the September quarter showed that, for the 08-09 year, business reported a still surprisingly upbeat outlook and did not reveal any signs of slashing and burning CapEx budgets.

Interest rate decision is out in Australia on Tuesday expectations are that the Reserve Bank of Australia will maintain a 75bp cut carrying on with their October cut of 75bps.

The week ahead:
NZD
Wednesday 3rd – ANZ Commodity Price (Nov)
Thursday 4th – RBNZ OCR Announcement
AUD
Monday 1st – AiTG Perfomance of Manufacturing Index (Nov)
Tuesday 2nd – Current Account Balance (Q3), Retail Sales (Oct) mom, RBA Interest Rate Announcement
Wednesday 3rd – GDP (Q3) qoq & yoy
Thursday 4th – Building Approvals (Oct)

GBPNZD
Last week the UK government announced a fiscal stimulus package of around 5% of GDP with the centerpiece being a 2.5 percent reduction in the VAT.  The government expects its deficit in 2009-10 to be 8% of GDP.  The package is a positive step but won’t stop the Bank of England having to cut interest rates further.  The UK economy shrank at its fastest pace since 1990 in the September quarter as household spending recorded its largest fall in more than a decade. Nationwide house prices fell by 0.4% in November to be down 13.9% yoy. This was better than the forecast fall of 1.7% but nonetheless leaves UK house prices 15% off their peak.

Last week the GBPNZD rate range traded between the GBPNZD 2.76 – 2.82 band with Sterling predominantly holding onto the gains it had made the week previously.  This week with interest rate decisions out in both the UK and New Zealand and large cuts expected from both sides we might see the rate continue in a similar band as last week with Sterling possibly pushing up towards the GBPNZD 2.85 level.

The week ahead in the UK:

Monday 1st – Mortgage approvals (Oct)
Tuesday 2nd – PMI Construction (Nov)
Wednesday 3rd – Nationwide Consumer Confidence (Nov)
Friday 5th – Bank of England Interest Rate Announcement

GBPAUD
Last week was a rather uneventful week for the GBPAUD pairing with the rate trading between a 5 cent band of 2.32 – 2.37.  Opening on Monday saw Australian Dollar strength pushing the rate down to the low of the week at 2.32. Sterling then gained and on Tuesday pushed up into the 2.38 level before retracting and then continued to trade close to the 2.35 level for the remainder of the week.

As with the GBPNZD rate both countries have their interest rate decisions this week with cuts expected from both.  We might see the rate move in Sterling’s favour the beginning of the week and then more towards the Australian Dollars favour towards the end of the week, surrounding the interest rate decision in Australia.  For data out in the UK please refer to GBPNZD above.

EURNZD
The German November Ifo Survey was truly awful and suggests that the fall in output in the Eurozone’s largest economy gained momentum and in the fourth quarter.  The weak link for the German economy seems to have been the export sector which has wilted during the global downturn and the appreciating euro. The problem remains that domestic demand is simply too weak to generate strong enough growth without the export sector providing support.

The rate after reaching the high last Tuesday, touching the EURNZD 2.4 level for a fraction spent the rest of the week trading down and on Friday closing in the EURNZD 2.32’s.  With expectations that the Reserve Bank of New Zealand is going to cut interest rates more aggressively than the ECB this week the rate might climb towards the 2.4 peak of last week.

The week ahead in the Euro zone:

Tuesday 2nd – PPI (Oct)
Thursday 3rd – GDP s.a. (Q3) qoq
Friday 4th – ECB Interest Rate Announcement

EURAUD
Of this pairing last week went to the Australian Dollar, from Tuesday onwards the Euro lost its footing.  On Tuesday the rate sat above the 2.0 level from then on it traded down to close play on Friday in the 1.93’s.  This week we might seen some Euro strength and recovery in the rate surrounding the interest rate decisions with the rate possibly pushing up into the higher 1.9’s off the back of an aggressive interest rate cut from the Reserve Bank of Australia.  For data out in the Euro zone please refer to EURNZD above.

NZDUSD
Last week the Fed announced two new policy initiatives totaling a commitment of up to a further US $800bn to support lending for consumers and for housing.  A further allocation totaling US $600bn is being made to purchase the guarantees and to purchase the mortgage backed securities of the major US government sponsored mortgage companies.  Activity data continues to deteriorate. Personal spending fell by a full 1% in November, accelerating a downward trend. Consumer sentiment in November fell to a 28-year low. Durable goods orders plunged 6.2%mom in October, while new home sales fell 5.3%mom last month to a 17-year low.

After the US Dollar strength the rate has seen the last couple of weeks the rate stabilised last week and moved in the New Zealand Dollars favour, with the rate slowly climbing up towards the 0.55 level the majority of the week.  This week with an aggressive interest rate cut from the Reserve Bank of New Zealand  possibly already priced in by the market we might not see too much movement from the rate.

The week ahead in the US:

Tuesday 2nd – Construction Spending (Oct) mom
Thursday 4th – ADP Employment change (Nov)
Friday 5th – Initial jobless claims (w/e Nov 30), Unemployment Rate (Nov)

AUDUSD
As with the NZDUSD rate the USD did not come off as the winner last week in this pairing either.  The AUDUSD rate began the week at the 0.62 level with the Australian Dollar making advances throughout the rest of the week climbing into the 0.65’s on Friday.  With the bailout packages seemingly calming the nerves and risk aversion levels of investors at present the USD might continue to weaken against the commodity currencies.  The data to look out for is the interest rate decision in Australia on Tuesday, we could witness some possible rate volatility surrounding the announcement.  For data out in the US this week please refer to NZDUSD above.

AUDNZD
As of the way of things recently the Australian Dollar kept strengthening against the New Zealand Dollar last week and that could possibly be the way of things this week.  The interest rate decisions is what to keep an eye out for this week we could see some volatility off the back of that with the rate possibly pushing into AUDNZD 1.20’s.

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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.