Foreign Exchange - Australia Weekly Update - Monday, August 10, 2009 7:04 - 0 Comments

World First NZD/AUD Weekly Update – 10th August 2009

NZD
Last week’s domestic data for NZ was a mixed bag.  Within the labour market there was a drop in wage growth, a fall in employment and quite a sharp rise in unemployment (a jump from 5% to 6% which is the sharpest increase since September 1988).  In contrast there was a surprise in the form of Fonterra’s (the world’s leading exporter of dairy products) online auction prices which rose by 26%.  This gain for NZ’s key export area will have put the RBNZ’s mind at ease with regards the strength of the NZ dollar and will have reduced any downside risk to that strength in the short term.

The focus for this week is Friday’s retail sales figures for June.  Economists are looking for signs that the contraction of the NZ retail sector over the past year and a half could be coming to an end.

AUD
The RBA met last week and as predicted held the cash rate at 3%.  The accompanying statement was reasonably optimistic stating ‘…the economy continues to exhibit considerable resilience in the face of what has been a very difficult international environment.’  The statement went on to cite several reasons for Australia’s buoyant position in comparison with other leading world economies.  Namely their strong financial system, significant monetary stimulus coming from the interest rate cuts (4.5% since September 2008), the fiscal stimulus package, and finally China’s continuing economic recovery which in turn means Australia’s commodities remain in demand resulting in a predicted slight rise in exports over the past year compared to a decline for other countries.

Given that the outlook in Australia is starting to look more promising the RBA went on to say that should the Australian economy continue to show signs of recovery over the coming months there was scope for interest rates to rise again.  With this in mind several economists within Australia’s leading banks have suggested the RBA will start moving the cash rate higher as of March next year.

In other news Australia’s unemployment rate held surprisingly steady at 5.8 per cent in July, which will only further the optimistic economic outlook for Australia. 

The coming week sees Governor Stevens give his twice yearly testimony to Parliament.  The Australian Dollar should remain unaffected unless he says something that contradicts the RBA’s statement last week.  However should he give the market belief that there could even be an interest rate rise before the year is out then the AUD may strengthen off that.

The week ahead:
NZD
Tuesday 11th – Card Spending (MoM –July)
Thursday 13th – Business NZ PMI (July), Food Prices (MoM – July)
Friday 14th – REINZ Monthly House Price Index (July), Retail Sales (MoM June)

AUD
Monday 10th – Home Loans (June), Investment Lending (June), Value of Loans (June), Foreign Reserves (July)
Tuesday 11th – NAB Bunsiness Conditions and Confidence (July)
Wednesday 12th  – Westpac Consumer Confidence (Aug), Wage Cost Index (2Q)
Thursday 13th – Consumer Inflation Expectation (Aug), Average Weekly Wages (2Q)
Friday 14th – RBA Governor’s semi-annual Parliament Testimony

GBPNZD
The NZ Dollar continues to have the better of sterling with a two and a half % gain on the pound last week.  The outset of the week was actually encouraging for the pound with small gains being made against NZD (peaking on Tuesday at 2.5390), however the second half the week saw all gains erased and the rate fell back to put us at the lows for the year thus far (2.4780).  The BoE’s decision to add to the UK’s quantative easing kitty put pay to the pound and any ground gained as the market viewed it as a very negative move. 

The coming week is likely to see the GBPNZD rate continue to trade in the 2.48 to 2.53 range.

The week ahead in the UK:
Tuesday 11th – Trade Balance (June), DCLG House Prices (June)
Wednesday 12th – Jobless Claims Change (July), Average Earnings (June), BoE Quarterly Inflation Report

GBPAUD
The pound continues to struggle against the Australian dollar and is back down below the GBPAUD 2.0 mark.  However the outset of last week saw some encouraging signs for the UK economy.  Manufacturing PMI hit 50.8 for the month of July moved into expansionary territory for the first time since March 2008.  Similarly PMI for the services industry rose 53.4 versus 51.8 expected.  These positive figures gave sterling some strength up until midweek however a combination of an optimistic outlook for Australia painted by the RBA coupled with a demoralising BoE decision to extend quantitative easing in the UK led the pound to lose ground against the Aussie dollar putting it down into the GBPAUD 1.98’s

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

EURNZD
The NZ dollar continued its march on the Euro with a 2.5% gain last week.  The main data from Europe was that the ECB kept the Eurozone’s interest rates as expected at 1%.  They also continue to keep their cards close to their chest stating they will review future monetary policy decisions on a ‘wait and see’ basis.  The continued move in NZ dollar’s favour against the Euro was less to do with anything coming from Europe but more to do with the surprise increase to prices in NZ’s key export area (Fonterra’s dairy auction) and a continuation of risk investment as the commodity currencies continue to be bought following the above expectation US employment data.

The week ahead in the Euro zone:
Monday 10th – Sentix Investor Confidence (Aug)
Tuesday 11th – CPI (Germany – July)
Wednesday 12th – Industrial Production (June)
Thursday 13th – GDP (Germany and EC – 2Q)
Friday 14th – CPI (July)

EURAUD
The Aussie dollar gained another 1% against the Euro moving down from EURAUD 1.71 down to 1.6920 last week.  Both the RBA and the ECB left their respective interest rates on hold but the long and short of it is that Australia’s economic outlook looks slightly more rosy than the Eurozone’s, therefore a continuation of the recent pattern of Aussie dollar strength is expected.

For data out in the Euro zone please refer to EURNZD above.

NZDUSD
The headline news last week for the US and indeed the global financial press is that the US’s unemployment rate unexpectedly dipped to 9.4% which is the first decline it has seen in 15 months.  This stronger than expected data has prompted analysts to suggest the US has now economically speaking turned a corner and is in a better position than many other recovering economies to grow over the coming months.  However this doesn’t mean the USD will immediately gain against the NZD and last week was testament to that with the rate maintaining levels around the NZDUSD 0.67 mark (which is the peak for the year so far).  In the short term we think the NZ dollar should remain supported at current levels given that risk investment is once again attractive, and exports have seemingly not suffered as much as some might have thought at the hand of the strengthening kiwi dollar .

The week ahead in the US:
Tuesday 11th – Non Farm Productivity (2Q), Labour Costs (2Q)
Wednesday 12th – Trade Balance (June), FOMC Rate Decision
Thursday 13th – Import Price Index (July), Retails Sales (July), Jobless Claims (w/e Aug 9)
Friday 14th – CPI (July), Industrial Production (July), University of Michigan Confidence (Aug)

AUDUSD
The Australian dollar has now gained by almost 25% in value against the US dollar since the start of the year, but still has some way to go to get back to the peak levels seen in 2008.  Considering the better than expected US employment report released on Friday last week (the unemployment rate dipped to 9.4% making it the first decline in unemployment in 15 months), an interesting tussle could now ensue between the US dollar and the commodity driven currencies such as the Aussie dollar. 

Has the US economy now turned the corner?  If so what effect will that have on the AUDUSD rate?  These questions are too early to answer however one of the obviously key areas with regard to the exchange rate will be commodity prices.  With China’s economic recovery seemingly underway, and therefore Australia’s commodities in demand the AUD should in the short term remain supported however further gains against the US dollar could prove harder to come by given the US’s fortunes could be on the turn.

For data out in the US please refer to NZDUSD above.

AUDNZD
With a role reversal of the week before, small gains were last week made by the NZ dollar against the Aussie dollar with the exchange rate moving down from 1.26 to 1.2460.

The current levels for this pairing are considered by many economists to be fair value in the present economic climate so a continuation of the stalemate we currently have is expected over the coming week.

 

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Please feel free to contact me (giles.smallwood@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.

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.