Foreign Exchange - Australia Weekly Update - Tuesday, June 30, 2009 0:01 - 0 Comments

World First NZD/AUD Weekly Update – 29th June 2009

NZD
Last Friday’s GDP data for NZ indicated that the economy remained in poor health throughout the first quarter of this year.  GDP contracted by 1% which was weaker than many economists had expected.

Despite the poor GDP data the NZ dollar remained relatively strong, showing that although the news is poor in NZ, elsewhere it continues to weigh heavily as well.

A slow road to recovery has been the comment uttered by central banks the world over and New Zealand is no different.  Similarly a weakening of the NZD has been cited as a crucial part of that recovery process for New Zealand; just in the same way the weakening of other major currencies has been suggested as a way of assisting their respective economies.

This week’s main piece of NZ data is the release of the NBNZ Business Outlook survey which NZ analysts are hoping shows further improvements made on May’s gains.   If the outlook is promising then the NZ dollar will remain supported and the RBNZ will have to wait a little while longer to see the NZ dollar weaken enough to assist the NZ export market.

AUD
Last week was very thin on the ground data wise for Australia so in comparison the coming days are a veritable economic banquet.  The main releases this week in Australia will be retail sales, building approvals and the trade balance for May.  How the data prevails will have a small bearing on the RBA’s decision next week – however Bloomberg economists have forecast the RBA to make no cut to the interest rate when they meet on the 7th July.  Holding the interest rates will further expectations for signs of economic recovery emerging in Australia before the year is out thus supporting the AUD.

The week ahead:
NZD
Monday 29th – Building Permits (MoM – May), Trade Balance (May), Money Supply (May)
Tuesday 30th – NBNZ Business Confidence (June)
Thursday 2nd – ANZ Commodity Price (June)
Friday 3rd – Financial Statements of Government

AUD
Tuesday 30th – HIA New Home Sales (May), Private Sector Credit (May)
Wednesday 1st – AIG Performance of Manufacturing Index (Jun), Retail Sales (May), Building Approvals (May), RBA Commodity Index SDR (June)
Thursday 2nd – Trade Balance (May)
Friday 3rd – AIG Performance of Service Index (June)

GBPNZD
Last Tuesday, the Bank of England’s Chief Economist, Spencer Dale, weakened sterling by commenting that the relative weakness of the pound was making UK assets more attractive to foreign investors and the exchange rate was a “key channel” to helping economic growth. This has been seen as an indirect attempt to shift sterling lower after its recent strength against certain pairings.

Spencer Dale’s comments were backed up by Mervyn King’s statement on Wednesday night that the road to recovery in the UK is going to be a ‘long hard slog’.  Subsequently we saw the pound lose any ground gained the week prior to last and GBPNZD was no exception, starting the week at 2.59 and trading down to 2.53 at the end of the week.

The 2.5 – 2.6 band has proved hard to break out of for GBPNZD and the coming week will likely be no exception.
The week ahead in the UK:
Monday 29th – Mortgage Approvals (May), Money Supply (May)
Tuesday 30th – GfK Consumer Confidence Survey (June), GDP (1Q), Current Account (1Q)
Wednesday 1st – PMI Manufacturing (June)
Thursday 2nd – PMI Construction (June)

GBPAUD
As with GBPNZD the pound faltered against the Australian Dollar last week following the views of Spencer Dale and Mervyn King that the UK is on course for a slow recovery that necessitates a weak pound to aid the faltering economy.  GBPAUD started the week at 2.0790 which is the high since mid April but slumped back down to 2.0400 by the end of the week.

The week ahead is likely to be an ominous one for the UK with the release of quarter 1 GDP data – however no-one is expecting that to be a ray of sunshine so a poor figure could well be priced in to the market, therefore we think the 2.04 to 2.07 trading range will continue for the coming week.

For data out in the UK this week please refer to GBPNZD above.

EURNZD
Last week’s Eurozone data (PMI (June) and Industrial New Orders (April)) came out weaker than expected which enabled the NZD to drive the Euro down to test levels not seen since early November last year (EURNZD 2.16).  With quite a few key releases this week coming from Europe we think the NZ dollar could make further gains against the Euro however the ECB are very good at keeping their cards close to their chest so with regard to their meeting at the end of the week analysts are not expecting any huge upsets.

The NZD is also widely regarded to be overly strong at the moment which is something the RBNZ will be keen to curtail so the EURNZD movement will unlikely be all NZD’s way but for now the risk seems more downward than up for this pair.

The week ahead in the Euro zone:
Monday 29th – Business Climate Indicator (June), Economic Confidence (June)
Tuesday 30th – CPI Estimate (June)
Wednesday 1st – PMI Manufacturing (June)
Thursday 2nd – Unemployment Rate (May), PPI (May), ECB Interest rate decision.
Friday 3rd – Trichet speaks at ECB Monthly News Conference, PMI Services (June), Retail Sales (MoM)

EURAUD
EURAUD’s downward movement in AUD’s favour over the past half a year has started to ease.  This would have been supported in part by last week’s move from the ECB to lend €442.2bn for 12 months to more than 1,100 banks at its current benchmark interest rate of 1 per cent. The high demand for the funds was down to a growing realisation by the banks that such emergency funding may not be available again on such favour-able terms.

In currency terms the ECB’s action should support the Euro in the short term and also boost the Eurozone’s recovery prospects by lowering market interest rates and creating more scope for banks to lend to the private sector.
For data out in the Euro zone please refer to EURNZD above.

NZDUSD
A downgrade of global growth forecasts by the World Bank at the beginning of last week combined with unrest in Iran led to a ‘sell off’ in high risk currencies.  The Washington organization predicts global growth will decline by 2.9% as supposed to their March estimate of 1.7%. Subsequently the US dollar (being a safe haven currency) prospered at the outset of the week pushing the NZDUSD pair down from 0.64 to 0.63.  However the remainder of the week saw the NZD gain back the lost ground moving back into the 0.64’s by Wednesday and remaining there through to the beginning of this week.

We expect the NZDUSD pair to continue for the short term to trade in the 0.625 – 0.65 band it has been in now for the past 6 weeks.

The week ahead in the US:
Wednesday 1st – Consumer Confidence (June)
Thursday 2nd – ADP Employment Change (June), ISM Manufacturing (June), Pending Home Sales (May)
Friday 3rd – Non Farm Payrolls (June), Unemployment Rate (June)

AUDUSD
“The pace of economic contraction is slowing” according to the Fed, after they concluded their two day meeting on Thursday evening, leaving rates on hold at 0 – 0.25%, and signaling no change to the Quantitative Easing (QE) program undertaken earlier this year.  The Fed also declared that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period”.  Their statements did nothing to aid the US dollar and the AUD as with the NZD was able to claw back some of the ground lost at the start of the week.  Having begun the week at 0.7850, AUDUSD pushed back above the 0.80 marker to finish the week at 0.8070.
For data out in the US please refer to NZDUSD above.

AUDNZD
Last week saw little movement in the AUDNZD pair (starting and finishing the week in the high 1.24’s) however going forward we think the rate will move higher as the NZD gradually weakens under the RBNZ’s guidance in order to aid the recovery process in NZ.  Economists are suggesting a 1.250 to 1.333 range being likely in the near term.

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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.