Foreign Exchange - Australia Weekly Update - Monday, August 11, 2008 22:29 - 0 Comments

World First NZD/AUD Weekly Update – 11th August 2008

NZD

The weakening in the NZD that we saw last week is not all bad news for New Zealand – the lower NZD, along with further rallying in local banks lending rates spells an ease in financial conditions and suggests that the economy is in good stead for a recovery, therein lessening the need for the RBNZ to react too hastily.

Also on a positive note for the New Zealand economy was the ANZ Commodity Price Index released last Thursday.  The index is a measure of NZ’s key commodity export prices and it rose 2.8 percent in July in comparison to the World Price index which rose 1.8 percent.  This shows that higher export prices, plus the sharp fall in the NZD, is having the obvious positive spin-offs for most of NZ’s export sectors.

The LCI measure of private sector ordinary time wage inflation rose by 0.8 percent in the June quarter, leaving annual growth unchanged at a record high 3.5 percent.  Wages are typically one of the last indicators to turn and are showing classic late-cycle persistence.  It stands to reason that the increase in cost of living in the current economic climate is the key reason for wage increases in the quarter, this could be of some concern to the RBNZ.

Looking ahead this week Friday’s retail numbers for June/Q2 will be the market’s NZ data focus for this week, with core retail sales expected to fall.  Also the June quarter Produce Price Index is out on Wednesday and as with the retail sales both input and output prices are expected to fall.

AUD

The Reserve Bank of Australia kept interest rates constant last week at 7.25 percent but the market still thinks a cut could be imminent.  Following the RBA’s Statement after the August Board meeting analysts are now convinced that the RBA is gearing up for a near term cut in rates.  Specifically, the last sentence of the statement said that “…the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing”.

Data released last week could add to the case for a cut in rates.  The house lending numbers for July were awful.  The headline number of owner occupied loans fell by 3.7% in June, worse than expectations and continues the pattern of falling house demand evident over the past year.

Furthermore the recent lower commodity prices coupled with falling yields and the picture is one of the AUD falling against pairings.  Activity in Australia’s construction sector contracted for a fifth straight month in July as dire weakness in home building offset a bounce in engineering.

Net employment rose by 10,900 overall in July, compared to forecasts of a gain of only 1,250.  Also full-time jobs surged 53,700, surprising analysts who had expected a pullback after the strength in June.

With the RBA apparently switching towards an easing bias after Tuesday’s statement from Glenn Stevens, the Monetary Policy Statement on Monday this week will be read very carefully. 

The week ahead:

NZD

Monday 11th – QVNZ House Price Index

Wednesday 13th – Producer Price Indexes

Thursday 14th- Business NZ PMI

Friday 15th- Retail Sales (m/m)

AUD

Monday 11th – Reserve Bank Quarterly Monetary Policy Statement

Tuesday 12th – NAB Business Confidence/Conditions

Wednesday 13th – Westpac Consumer Confidence, Wage Cost Index Q/Q

Thursday 14th- Consumer Inflation Expectation

GBPNZD

Despite the Bank of England holding rates constant at 5.0% last Thursday, Sterling jumped significantly against the NZD during trading on Friday reaching the high for the year of GBPNZD 2.757. In total review of the rate last week trading commenced on Monday at GBPNZD 2.693 to briefly dip on Tuesday into the GBPNZD 2.68’s, from that point Sterling started its climb on upwards hitting the peak of the year on Friday.

Economically speaking the gain by Sterling against the NZD contradicts the poor UK statistics released last week.  The construction sector measurement hit the lowest reading since the survey was started in 1997 and Nationwide Consumer Confidence survey also posted yet another record low.  It shows that the market is used to seeing poor data from the UK and despite this backdrop it continues to gain against the NZD.

This week with poor figures expected out in New Zealand the Sterling might keep hold of the ground it has gained and stay above GBPNZD 2.72 and possibly trade upwards into the GBPNZD 2.75’s

The week ahead in the UK calendar:

Monday 11th – PPI Input m/m

Tuesday 12th – CPI y/y

Wednesday 13th – Claimant Count Change, Unemployment Rate

GBPAUD

In usual fashion the GBPAUD pairing was rather parallel in movements with the GBPNZD rate.  The week started at GBPAUD 2.118 and Sterling gained steadily on the Australian Dollar from there on in hitting the highest levels seen since March of GBPAUD 2.160 at close on Friday.

This movement has mostly been caused by the market pricing in interest rate cuts for Australia by the end of the year.  The RBA’s statement released after last Tuesday’s Board meeting signaled that the next move in interest rates would be down due to the sharp slowing in economic growth.

In the week ahead with more negative data expected out in Australia we could see the rate hover at the current levels of GBPAUD 2.15’s with the possibility of Sterling pushing up slightly into the GBPAUD 2.16 – 2.17 band.

EURNZD

The EURNZD started the week in the 2.13’s climbing the rest of the week to hit the high EURNZD 2.16’s (2.1690), highest levels since 2002 before falling back to the EURNZD 2.13’s at opening today. 

There is valid reason to be cautious of the Euro and how long it will maintain its strength as data released last week was poor and economists’ are hinting that it’s just a matter of time before it is reflected in the rate.

In the Eurozone last week data was released on factory prices hitting record highs.  Prices for products sold from business to business in the Eurozone rose by an annual 8 percent in June, these results are expected to have a soaring effect on consumer prices.  Also the RBS/Markit Eurozone Purchasing Managers Index for service companies, which range from banks to cafes, fell to 48.3 in July from 49.1 well below the 50.0 mark that separates growth from contraction.

“If leading indicators like the PMIs are of any reliability then we are headed toward a period of serious stagnation in the Eurozone,” said Aurelio Maccario at UniCredit MIB.

The central bank is now expected to hold interest rates steady at 4.25 percent well into 2009, despite the slowdown, as it battles to bring inflation back under its 2 percent target ceiling, a Reuters poll predicted last week.

That in mind we may have witnessed the spike for the time being on Friday and we think the EURNZD rate will trade this week between EURNZD 2.13 – 2.15.

The week ahead in the Euro calendar:

Wednesday 13th – Industrial Production m/m

Thursday 14th – German Prelim GDP q/q, CPI y/y

EURAUD

As with the New Zealand Dollar the Euro had steady growth against the Australian Dollar reaching EURAUD 1.7020 on Friday.

However, in the same way the Euro depreciated against the NZD it has fallen against the AUD in opening today and with the economic climate in the Eurozone not being forecast in the best of shapes it might have also enjoyed its peak against the AUD for the meantime and continue to trade back in the EURAUD 1.67 – 1.69 band.

NZDUSD

The FOMC held rates in the US last week at 2.0% and accompanying the decision were whispers that we would not see hikes in the base rate until 2009. 

Speculation is currently mounting at the moment that the US is in the best position to emerge quickly from the economic downturn and last week that was evident in the NZDUSD rate.  Analysts say the turn towards the dollar reflects surprise that the fallout from the credit crisis has had such a marked effect on economies outside the US.  They say other central banks, unlike the Federal Reserve, have been slow to react to a potential slowdown, refusing to cut interest rates as they focus on fighting inflation.  The USD pushed out of the NZDUSD 0.72-0.74 trading band of the last couple of months to close on Friday at lower levels in the low NZDUSD 0.70’s (0.7020).

Friday’s June retail sales print is widely tipped to be soft, which will not be supportive of the New Zealand Dollar and we could see the NZDUSD continue at its new lower levels and remain in the NZDUSD 0.70’s possibly pushing into the NZDUSD 0.69’s.

The week ahead in the US:

Wednesday 13th – Trade Balance (June)

Thursday 14th – Import Price Index (July), Advance Retail Sales (July)

Friday 15th – Consumer Price Index m/m and y/y

Initial Jobless Claims (w/e Aug 10)

AUDUSD

Sentiment in the US is that the economy has hit rock bottom and so there is no other direction but up, this was reflected in the rate and the USD appreciated against the AUD last week.  At the beginning of the week the AUDUSD was at 0.93 to fall by 4 percent to AUDUSD 0.89’s on Friday.

With Dovish statements expected from the Monetary Policy Statement and the sentiment that the US was first into recession and is likely to be the first out could mean that the AUDUSD might continue in the trend of last week.  With the rate likely to stay below the AUDUSD 0.90 for the time being.

AUDNZD

Last week was a mixed bag for the AUDNZD rate.  New Zealand started with the upper hand gaining a cent and a half on the AUD, the rate moving from mid AUDNZD 1.27’s on Monday to AUDNZD 1.26 on Tuesday.  The remainder of the week saw the Australian Dollar take control again and the rate moved back up to AUDNZD 1.275 on Friday.

The headline release from both economies was the Reserve Bank of Australia’s interest rate decision and in-line with market consensus the rate was held constant at 7.25 percent.  Now that the view is that the Reserve Bank of Australia is taking a dovish stance we could see the AUD take a slight dip against the NZD or alternatively not break higher than the AUDNZD 1.27’s it has been testing recently as both currencies seem now to be in the same economic condition.

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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 currency 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