Foreign Exchange - Australia Weekly Update - Monday, August 4, 2008 6:25 - 0 Comments

World First NZD/AUD Weekly Update – 04th August 2008

NZD

Last week’s New Zealand data continued to show the economy is slowing.  This was also a key feature of Alan Bollards midweek speech, in which he outlined the hard task ahead for the RBNZ.  

The National Bank Business Outlook for July showed us the first indication of how Quarter 3 is shaping up.  Unfortunately the outlook is not good – with a net 8 percent of firms expecting conditions for their business to worsen over the coming year.  Tuesdays Building Permits data also disappointed and such was the negativity that the market is starting to price in a 50bp cut for the September RBNZ meeting

On Wednesday the Reserve Bank Governor, Dr Alan Bollard gave a speech stating that “New Zealand’s inflation-targeting framework continues to serve the economy well, but we should be careful not to ask too much of it”.

He went on to say; “inflation targeting is the best approach New Zealand and many other similar countries have yet found for monetary policy, among a limited number of viable alternatives….. of course, we continue to seek improvements.  But overall, and even in the current very difficult circumstances, the flexible inflation targeting framework positions us well to manage the ongoing shocks impacting the New Zealand economy.”

He also stated; “The New Zealand economy is subject to powerful forces and monetary policy can only do so much to buffer the shocks…….New Zealand is starting from a position of high real interest rates currently, reflecting the need to restrain inflation pressure that has built up in recent years.  The current weakness in the economy allows room for rates to be cut, while ensuring inflation, and inflation expectations, come down over the medium term to within the target range.”

It is unsurprising then that the NZD lost a lot of ground last week against many of its pairs – including almost 2% against GBP and 2.5% against the USD.

AUD

Like the NZD, the AUD was also a big mover last week, falling through key levels against both GBP and USD.  The reasons for the moves were common for both currencies – the market is now re-pricing both countries interest rate outlook following slowing economies.  Both currencies were also further impacted by the lowering of global commodity prices and a slightly diminishing demand. 

Last week’s Australian data all came out weaker than expected – Junes retail sales were down 1% and Building Approvals for the same month were also poor.  This has led many analysts to lower their growth expectations for Australia in 2009.

Focus is now on interest rates in Australia – with the national newspapers demanding cuts and running it as front page news.  However the RBA are likely to need a little more persuasion if they are to cut as early as this Tuesday’s meeting so most economists are now pricing a 50% chance of a cut occurring between now and the October 7th meeting. 

The week ahead

NZD

Monday 4th August – Labor Cost Index (QoQ – 2Q)

Tuesday 5th – ANZ Commodity Price (Jul)

Thursday 7th – Unemployment Rate (Q2)

AUD

Monday 4th August – House Price Index (QoQ and YoY– 2Q)

Tuesday 5th – RBA Interest Rate Decision

Wednesday 6th – Home Loans (Jun), Investment Lending (Jun)

Thursday 7th – Employment Change (Jul), Unemployment Rate

GBPNZD

At the start of last week GBPNZD opened trading at 2.68 and it continued to flirt with the high 2.6’s through to Wednesday when it began to climb higher; pushing above 2.7 and continuing to climb on Thursday and Friday to hit the peak at end of the week of 2.72

The housing data in the UK continues to disappoint and last week was no exception – Monday’s figures from Hometrack signalled more woe for the UK housing market. According to the report house prices fell by 1.2% in June which further highlights the risks of a recession.

Similarly Sterling was done no favours by the Bank of England’s mortgage approval data that came out on Tuesday last week. The figure, already resting at an all-time low, fell further pointing towards further sharp falls in house prices over the coming months.  Further talk of a recession has increased as a result. However the market is somewhat used to the weak news coming from the UK so the effect on the GBPNZD rate was just to keep it level at the early part of the week.

Reserve Bank Governor Alan Bollards speech on Wednesday was the catalyst for the depreciation of the NZD which meant Sterling was able to gain ground for the remainder of the week.

This week is an interest rate decision in the UK and while the market expects the BoE to keep rates on hold there is a chance that the GBPNZD exchange rate could be halted in making further upward progress until the decision is made.

The week ahead in the UK calendar:

Monday 4th August – PMI Construction (Jul)

Tuesday 5th – Halifax House Prices (Mom and YoY – Jul), Industrial Production (Jun), Manufacturing Production (Jun), Purchasing Manager Index Services (Jul), Nationwide Consumer Confidence (Jul) and NIESR GDP Estimate (Jul)

Wednesday 6th – BRC Shop Price Index (Jul)

Thursday 7th – BoE Interest Rate Decision

GBPAUD

The movement of the GBPAUD rate last week again mirrored that of the GBPNZD.  At the beginning of the week it started at 2.0865 moving up to 2.1 on Wednesday and finished at 2.1150 at the end of the week

Both the RBA and the BoE decide on interest rates this week, with neither party expected to vote for a change.  The majority of last week’s moves came about as the market started to re-calculate Australia’s interest rates going forward – pricing cuts over the coming year.  However the negativity may be stemmed in the short term by a likely vote to keep interest rates on hold by the RBA on Tuesday.  Nonetheless with commodity prices lowering and all data from Australia coming out poor last week we would expect further corrections to the overpriced AUD to occur over coming weeks, but it undoubtedly won’t go all Sterling’s way given that last week’s data in the UK was equally disappointing.  For upcoming GBP data please see GBPNZD above.

EURNZD

EURNZD started last week at 2.115 dropping a little mid week to 2.11 but then rose back as of Thursday for the end of the week to peak at 2.136.

The ground lost at the early part of the week was due to Monday’s poor consumer confidence survey from Germany. This was then further backed up by the European wide consumer confidence figures on Wednesday that were equally poor. The past 7 days have seen a lot of weak data from the Eurozone and many analysts are now reporting that downside risks within Europe are evident. 

Inflation in the Eurozone hit a record 4.1% in July but analysts expect this to be reduced with the recent drop in oil prices.  There are also murmurings that the Eurozone economy contracted in the 2nd Quarter of this year and that the remainder of the year is looking uncertain, however the EURNZD trend remains upwards for now.

This week has the ECB meet to decide on interest rates – most expect them to keep them on hold.  With another busy economic calendar in the Eurozone this week economists are likely to continue to scrutinise the state of the European economy.  While we expect much of the data to come out flat or weak it may not be enough to pull the EURNZD rate lower. 

The week ahead in the Euro calendar:

Monday 4th August – Sentix Investor Confidence, Producer Price Index (Jun)

Tuesday 5th – German Purchasing Manager Index (Jul), European Purchasing Manager Index (Jul), European Retail Sales (Jun)

Wednesday 6th – German Factory Orders (Jun)

Thursday 7th – German Trade Balance (Jun), Industrial Production (Jun), ECB Interest Rate Decision, ECB Trichet’s Speech

EURAUD

Started last week at EURAUD 1.6465 then dipped a little on Tuesday to 1.6350 but then saw a steady rise to finish at the peak on Friday at 1.6610

With data coming out badly in both the Eurozone and Australia last week it was unsurprising to see the rate move both ways, however ultimately the week belonged to the Euro and the EURAUD rate broke upwards of its 1.62 – 1.65 range for the first time since the end of April this year. 

Interest rates are decided in both Australian and the Eurozone this week with neither central bank expected to change rates.  However last week heralded the market to reassess the future of the interest rates in Australia and the large sell off in AUD came about through increased belief that the RBA would cut interest rates within the next three months.  That said, they are unlikely to start this process tomorrow when they meet for their monthly meeting, therefore initially we may see a small correction to the EURAUD rate and some of last week’s gains taken back.  For the upcoming Eurozone data please see EURNZD above.

NZDUSD

At the beginning of last week the NZDUSD sat at 0.7420 and then had a gradual downward movement from Wednesday onwards to finish the week at 0.7282.

A three month low on the Oil markets and increased optimism over the prospects of the US economy saw the US dollar strengthen against the majority of its currency pairings. Oil fell off its highs amid comments from BP CEO Tony Hayward that the demand for petrol in developed economies was down as consumers cut expenditure and resorted to more cost effective means of transportation. Tuesdays US Consumer Confidence was also stronger than expected; the measure published at 51.9 against a consensus view of 51.0.

Wednesday was another strong day for the US dollar as employment figures surprised to the upside and the Federal Reserve extended lending facilities to the battered US financial sector.

ADP employment change, a private sector payrolls survey, was forecast to show that 58,000 jobs had been lost over the past 30 days however it instead showed that employers had in fact added 9,000 jobs.

The big data stateside last week was the Non Farm Payrolls which dropped by 75,000 however a drop of up to 150,000 had been expected by some so this was deemed a stronger figure.  However things were not all the USD’s way as a report on Thursday showed that the number of workers filing for unemployment benefits rose to a 5 year high and poor growth data also hurt the greenback; the US economy grew at 1.9% on an annualized figure, lower than 2.3% that economists expected.

All in all the USD has started to find a firm footing – possibly out of the fact that things can’t get much worse and they have hit the bottom so the only way is up.  Nonetheless we expect this optimism to be interspersed with continued poor news that is being reflected by all the leading global economies, and therefore we anticipate slow gains against the NZD.

The week ahead in the US economic calendar:

Monday 4th August – Core Personal Consumption Expenditure (Jun), Personal Income (Jun), Personal Spending (Jun) and Factory Orders (Jun)

Tuesday 5th – ISM Non-Manufacturing (Jul), Fed Interest Rate Decision

Wednesday 6th – MBA Mortgage Applications (Aug 1)

Thursday 7th – Pending Home Sales (Jun), Consumer Credit (Jun)

Friday 8th – Nonfarm Productivity (Q2), Unit Labor Costs (Q2), Wholesale Inventories (Jun)

AUDUSD

In a similar pattern to NZDUSD the AUDUSD started last week at 0.9540.  The rate then started to drop from Tuesday onwards – gradually moving down to finish the week at 0.9366; the low for a month and a half.  There seems to be some key resistance at 0.9350 a level that the rate has bounced off on 6 occasions in the past four months – if it breaks down of this level the next resistance level is 0.90

As the market starts to price in an interest cut in Australia and the possibility of a raise in the US interest rates it is unsurprising to see the AUDUSD pull back from the recent peaks.  Downward momentum may be halted with the RBA expected to hold off any cuts just now, but we stand by last week’s prognosis that a slow movement back down into the 0.80’s should occur.  For the upcoming US calendar please see NZDUSD.

AUDNZD

Last week was quite a volatile one for AUDNZD – the rate started the week at 1.2845 (0.7785) rising on Tuesday to the peak for the week of 1.2925 (0.7736) but then it traded back down to the weeks low on Thursday at 1.28 before finishing almost where it began at 1.2850 on Friday.

Up until last week the NZD was certainly proving to be the worst hit of the two in terms the global problems that are running wild.  However the last seven days heralded the start of the market acknowledging that the AUD is also affected and not only that but, unsurprisingly given that they are both commodity currencies, affected in a very similar manner.  Both have slowing economies 

(albeit much weaker in the case of NZ) and both are effected by fluctuating commodity prices. 

The market is now pricing in interest rate cuts in Australia much in the same way it has done for NZ.  Subsequently the AUD lost ground last week against many of its pairs and we would expect it to do so this week against the NZD, as speculators take advantage or the recent gains made in the rate, anticipating it being lower over the coming days.

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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.

If you would like to discuss your foreign exchange requirements then please don’t hesitate to call our Southern Hemisphere Office on our New Zealand Free phone number 0800 666114, or Australian Free phone number 1800 701540 or direct on 0064 7839 6114.

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