Euro woes continue: $100 Billion should do us…says Spain!

Brief Summary:

• AUD/USD trading just below parity.
• Euro woes continue weakening Euro to just below 0.80 against the AUD
• US retail data down for a second month.

The AUD traded higher against the majors the past week, 1.97% increase against the USD, 1.5% against the EUR and 0.54% against GBP.
A small silver lining appeared last week with RBA decision to reduce the interest rates by 0.25% rather than 0.5%. RBA has reduced interest rates in their last two meetings with expectations of increasing growth whilst Europe and China spread concerns on the outlook of the global economy. The confidence remains subdued even though there was a lower than expected drop in Interest rates, improved employment figures and a better than forecasted growth quarter.
Please see specific commentary for your relevant currency pairs below.

AUDUSD

• The RBA dropped interest rates by 0.25% on Tuesday, resulting in a slight dip and then rebound in the AUD/USD. Confidence was seen in the market as investors expected a 0.5% decrease.

• US Trade Deficit narrowed in April as a drop in imports overshadowed the first decline in exports in five months. This is predominantly due to a slump in shipments to Europe. This is a 4.9% drop from the previous month.

• Data out last night from the US had a negative impact on USD as figures are worse than forecasted, these include Core Retail Sales (Change in the total value of sales at the retail level, excluding automobiles), Producer Price Index (Change in the price of finished goods and services sold by producers) and Retails sales (Change in the total value of sales at the retail level).

AUDEUR

• Euro-zone leaders presented the bloc’s fourth bailout this weekend as Spain sought as much as 100 billion euros ($125 billion) to rescue its banks. Only four Euro nations; Germany, Luxembourg, Finland and the Netherlands still hold the top AAA credit rating. Spain holds a BBB, and Italy an A-.

• One of the concerns discussed by the Euro Zone was the capital flight from the struggling Euro countries. Deposits in Germany rose 4.4% to 2.17 trillion Euros as of April 30 from a year earlier, according to European Central Bank figures. In the same period deposits in Spain, Greece and Ireland shrank 6.5% to 1.2 trillion euros. (The data compiled by Bloomberg). This capital flight is becoming more apparent with the Greek elections looming

• Euro worries continue with the thoughts that Greece may ultimately leave the 17-nation Euro. This created some worry that other struggling Euro zone countries may follow suite. This is adding to the crumbling investor confidence in the area.

• Greece has their election set for this weekend (June 17). This will decide their future in the Euro zone.

AUDGBP

• Sparse data out of the United Kingdom this week but it was a very volatile week for AUD/GBP with a high over the week of 0.6443 and a low of 0.6354. AUD/GBP now trades a little over 0.64.

• UK Manufacturing Output declined more than forecasted. This is 8% below its pre-recession peak and shows no signs of being the driver for economic rebalancing.

• The Bank of England will speak tomorrow night and hopefully drop subtle clues regarding future monetary policy. 

AUDNZD

• An NZ Interest rate remains unchanged at 2.5%. Comments made by ANZ said the big fall in the dollar in recent weeks, a stabilisation in commodity prices, aggressive fixed-mortgage interest rate cuts, and the coming Canterbury rebuild all pointed away from a cut causing it to remain steady.

• The first expected rate rise may only be seen in the first half of 2013.

• The AUD is slightly down for the week against the NZD (0.5% approx), the interest rate announcement did see a high of 1.2860 but this has since dropped off to 1.2815.

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By Ray Ridgeway

Senior Corporate Business Development