Eurozone Bickering Continues!

 Brief Summary:

• AUD and NZD Euro reaches new high against Euro
• Bank of England announces third round monetary stimulus to boost economy
• Australian business confidence at a 3 year low

The past week has seen AUD trading higher against most of the majors, 2.4% higher against the EUR (0.8377) and 0.62% against GBP (0.6612); but a 0.3% decrease against the USD (1.0255).

Australian Dollar did see a week of activity with GBP reaching the highest it has been since March 2012, the Euro breaking through the previous all-time high and maintaining its position. Whilst all-time highs were seen this week, NAB business survey announced business conditions have fallen to their lowest point in 3 years (NAB Monthly private survey). ANZ also announced a job advertising fall of 1.2% after a May fall of 2.6%. The reasoning; there has been a softening in labour demand since the beginning of the year and also hesitation from some companies due to the heightened uncertainty in the global economy.

Please see specific commentary for your relevant currency pairs below.

AUDUSD

• Chinese CPI posted a gain of 2.2%, slightly below the market forecast of 2.4%. China posted a Trade Balance surplus of 31.7 billion, its best performance since February 2009.

• NAB Business Confidence dropped to -3 points, a ten-month low. Despite the disappointing data AUD, remained above the 1.02 line.

• Trade Balance Data out last night showed the trade deficit in the US narrowed in May as falling crude oil prices and weakening demand for consumer goods trimmed the import bill. The gap shrank 3.8% to $48.7 billion and purchases from abroad fell to the lowest level in three months, while exports climbed to the second- highest on record.

AUDEUR

• Following last week’s EU Summit, the mood seemed to dampen quite quickly. Finland has no intention of footing the bill to cover the debt of other Eurozone countries. They also hinted about leaving the Eurozone but later denied it. Cyprus feel they were forced to ask for a bailout as they fell “unfairly” foul to Europe’s debt crisis with the writing off of Greece’s €100 Billion debt and urged Eurozone nations to share debt according to size. Given that Cyprus lost €4.2bn euros, amounting to 24% of its gross national product and they only account for 0.2% of the total economies of the 17 euro nation. If it was shared the loss evenly then they would have only lost €200 million and prevented them from a bailout request.

• The ECB, at its regular monthly policy meeting, reduced Eurozone borrowing costs to a new record low of 0.75%. The two other key rates, the marginal lending facility and the deposit facility, would also be cut to 1.50% and 0% respectively. Analysts said that in cutting rates, the ECB will help prop up the relatively positive sentiment on financial markets since the EU summit, which delivered more than originally hoped for in moves to halt the debt crisis.

• Eurozone finance ministers agreed on Tuesday to offer Spain €30 Billion this month to help its distressed banks as they raced to stay ahead of market scepticism.

• Italian bailout next? Italian Prime Minister Mario Monti has asked for help from Germany and the European Central Bank (ECB) as the situation worsens. The Eurozone’s third largest economy is suffering from a problematic banking system.

AUDGBP

• The Bank of England (BoE) announced a third round of monetary stimulus on Thursday. They will increase its Quantitative Easing (QE) stimulus policy by £50bn to boost Britain’s recession-hit economy. BoE also added that it was keeping its main interest rate at a record low 0.50%.

• Inflation has fallen more than expected to 2.8%, easing some of the concerns that caused the BoE to halt stimulus in May, although it is still well above its 2% target.

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