Foreign Exchange - Australia Weekly Update - Monday, November 10, 2008 22:51 - 0 Comments

World First NZD/AUD Weekly Update – 10th November 2008

NZD
Change appears to be the new black as last week we saw the United States elect its first African American President and on Saturday the majority of New Zealanders believed and voted for a change in government with National obtaining 59 seats from a 122 seat Parliament.  Claiming the biggest victory since MMP was introduced in 1996.  In suit of the announcement Helen Clark resigned as leader of the Labour party.

Mr. Keys has his work cut out for him as he takes over the position as Prime Minister in the toughest economic conditions the country has seen in a number of years.  He is embarking on his term with a 100-day plan, part of this plan is for New Zealanders to receive yet another round of tax cuts effective as of 1 April 2008.

In economics last week data out showed another strong increase in wages in Q3.  Annual growth in wages was a record high at 3.7 percent.  A number of respondents reported the reason for the increase in wages over the quarter was to reflect increases in the cost of living.  Alongside wage inflation the unemployment rate rose to 4.2 percent, this is the highest level since December 2003.  Total employment grew by 0.1 percent in the September quarter, failing to register a pull-back from the June quarter’s surprise gain.  This data continuing to portray a struggling New Zealand economy.

AUD
Last week in another aggressive move, the RBA has cut the cash rate to 5.25% bringing the total reduction in rates at this and the previous two meetings to 200bps.  The cash rate is now back down to the lowest rate for three years: it was last at this level in March 2005.

Possibly aiding the need for the 75bp cut was the data out on retail trade and house prices out last Monday.  Both series came in below market expectations and showed a marked downturn in consumer spending and housing demand.

In a positive turn of events in Australia last week the labour market officially held up in October defying expectations with employment rising a stronger than expected 34,300 and the unemployment rate steady at 4.3%.  The participation rate also rose to 65.3% from 65.1%.

The week ahead:

NZD
Wednesday 12th – RBNZ Financial Stability Report
Thursday 13th – Business NZ PMI (Oct), Retail Sales (Sep)

AUD
Monday 10th – Home Loans (Sep)
Tuesday 11th – NZB Business Confidence (Oct)
Wednesday 12th – Westpac Consumer Confidence (Nov)
Thursday 13th – Consumer Inflation Expectation (Nov)

GBPNZD
The big news out last week was the Bank of England slashing rates by 1.5%.  The MPC confounded market expectations, cutting its key base rate to 3.0%, the lowest level since May 1954.

As with the majority of pairings as risk appetites have cautiously built back up the commodity currencies have gained, the New Zealand Dollar included.  The rate opened last Monday significantly down from the previous week and remained down for the rest of the week, with the GBPNZD rate range trading between the 2.63 – 2.67 band.  Economic data released seemingly being a non feature in the pairing.

This week’s main interest will be the publication of the latest inflation report and the accompanying press conference by the Governor Mervyn King.  The other main release of interest is the labour market data with economists forecasting a possibility of the unemployment level jumping to 6.0%.

The week ahead in the UK:
Monday 10th – PPI Input & Output (Oct) mom
Tuesday 11th – RICS House Price Balance (Oct)
Wednesday 12th – Jobless Claims Change (Oct), ILO Unemployment Rate, Bank of England Inflation Report

GBPAUD
Australia and the UK cut interest rates last week in a bid to mitigate extreme downside risks to growth.  Both central banks moving more aggressively than expected which in turn lead to slight volatility in the rate at the beginning of the week.

At opening the rate moved in Australia’s favour hitting the low of the week GBPAUD 2.28, Sterling steadily increased towards the end of the week trading in the GBPAUD 2.35’s.  Data out this week is particularly second tier of nature, wages and Consumer Sentiment are due out on Wednesday.  Internationally, equity markets appear to be the key bellwether at present and a directional guide for other markets.  As a result, they are key to watch.  For data out in the UK please see GBPNZD above.

EURNZD
The European Central bank and the Swiss National Bank both cut rates by 50 bps last week, with the SNB cutting rates ahead of its scheduled December meeting.

It was an even battle between the New Zealand Dollar and the Euro last week with rallies coming from both sides.  At the low of the week on Tuesday the AUD strengthened to bring the rate into the 2.11’s with the EUR fighting back and the rate trading between the 2.12 – 2.16 for the majority of the week, the EUR then taking it home to finish trading in the EURNZD 2.17’s.

This week a technical recession in the Euro-zone could be confirmed on Friday, if GDP falls by 0.1% in the three months to September in line with market expectations.  In Germany the headline economic sentiment index is expected to ease back from the -63 reading to -61.5 which could support the Euro.

The week ahead in the Euro-zone:
Monday 10th – Sentix investor Confidence (Dec)
Tuesday 11th – In Germany and Euro zone the ZEW Survey (Econ Sentiment) Nov
Wednesday 12th – Industrial Production (Sep) mom
Thursday 13th – Germany GDP (Q3) qoq
Friday 14th – In Germany and the Euro zone CPI (Oct) mom, GDP (Q3) qoq

EURAUD
Along with the EURNZD rate this was also a pair that encountered the most volatility.  Trading spent the majority of the week range trading between EURAUD 1.85 and 1.91.

As relatively the same amount of data being released from both sides this week the rate may continue to trade between the same band this week.  As is the case with all markets globally it is the equity markets and levels of risk aversion that are being the influential ingredients in the current climate kitchen, it is the equity markets at present that should be closely watched.  For data out in the Euro zone please refer to the EURNZD rate above.

NZDUSD
It was politics overload last week with elections taking place in both New Zealand and the US, the elections unfolding in the States taking centre stage not just in America but globally.  For those who doubted America’s ability to reinvent themselves, last week’s history making election of Barack Obama to President was a huge wake up call.  With Obama’s economic do to list not light on tasks, he has signed up for a lot of hard work and in the current climate it is not going to be an easy task.  Far from the political limelight the ISM reading for the US manufacturing and services sector portrayed an economy that was headed into if not already in recession moving from the 43.9 reading in September to 38.9.

With risk aversion levels stabilising and the commodity currencies making a comeback we did not see too much movement in the NZDUSD rate, the majority of the week the rate trading between the 0.59 – 0.60 band.  The rate reached a high on Tuesday of NZDUSD 0.61 and then on Friday the USD made some ground and ended trading at NZDUSD 0.588.  Decisive outcomes in the US and NZ election mean the currency market can once again turn its attention to economic developments.  The story there however will more than likely remain poor.

The week ahead in the US:
Wednesday 12th – IBD/TIPP Economic Optimism (Nov)
Friday 14th – Trade Balance (Sep), Initial Jobless Claims (w/e Nov 9)
Saturday 15th – Import Price Index (Oct) mom, Retail Sales (Oct) mom

AUDUSD
Mirroring the NZDUSD rate the AUDUSD moved in a similar fashion last week, trading between the AUDUSD 0.66 – 0.69 band with moves coming up from either side.  Leading up to the election in America the Australian Dollar appreciated to the high of the week AUDUSD 0.699 with the remainder of the week belonging to the USD as it made its way slowly down to close on Friday in the AUDUSD 0.67’s.

Markets hate uncertainty, and last week we managed to get the political uncertainty out of the way.  This could lead to be a relatively quiet front in the AUD USD rate with second tier data out this week.

AUDNZD
The combination of the 75 bps rate cut in Australia and the pending election in New Zealand left the rate in a slight state of disarray last week.  As with the majority of pairings it range traded between a band of AUDNZD 1.13 and 1.15.
This week economic data again is not likely to be market movers and a continued level of trading between the 1.13 – 1.15 is more than likely to continue.

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