Trading Headlines Like a G6 + 1

Chris13 February 2013

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Trading Headlines Like a G6 +1

Brief Summary:

The FX market has been void of significant data releases this week. Most price action was centred on the G7 meetings and interpretations of official statements regarding currency manipulation. The JPY has been particularly volatile against the USD as various officials voiced concern over its rapid depreciation but fell short of stating the Japanese were purposely devaluing the currency. USDJPY touched a low of 92.17 last week and a high of 94.47 to be 93.00 at time of writing. The EUR, the most hawkishly governed major currency, has traded similarly choppily falling from its high of 1.3661 to 1.3444 against the USD.
It was slim pickings for Australian data also with the AUD subject to G7 focussed trading. AUDUSD fell from a high of 1.0458, to a low of 1.0227, before recovering to 1.0336 at time of writing. AUDEUR dipped last week but found strong support at 0.7600 and recovered to 0.7693 at time of writing. AUDGBP trended down from a high of 0.6656, to a low of 0.6513, though similarly recovered to 0.6600 at time of writing.
The G7 Ministers and Governors attempted to quell the talk of currency wars stating somewhat predictably, “ [We] reaffirm our longstanding commitment to market determined exchange rates” and “monetary policies have been and will remain oriented towards meeting our respective domestic objectives… we will not target exchange rates”.

Australian employment figures were released last Thursday showing a continued softening of the labour market. The headline figures showed 10,400 jobs being added in January and unemployment steady at 5.4%. While they appear moderately positive, the full release reveals full-time employment again declined by 9,800. Full time employment has posted declines every month since October 2012.
The soft figure led the AUD lower as the chances of the RBA cutting the cash rate at its March meeting are increased given their easing bias. The minutes of the RBA’s February meeting will be released next Tuesday at 11:30am.

Two hours earlier, New Zealand released employment data for the fourth quarter of 2012 revealing a sharpening decline in their labour market. 22,000 jobs were shed and the unemployment rate declined from 7.3% to 6.9%, however, the decline was solely due to the participation rate, the percentage of the population in the labour force, declining by 1.2% to 67.2%. This is the lowest level since 2004 and has been largely blamed on the exodus of workers to Australia.
NZDUSD fell almost 1.5 cents from 0.8450 to 0.8316 throughout Thursday trading, and AUDNZD gained roughly the same from 1.2240 to reach a high of 1.2391.

USD
AUDUSD tracked to its weakest levels of 2013 touching a low of 1.0227 on Tuesday. The dip was not driven by any specific news; the cross has been under pressure after the RBA reinstated their easing bias and Australian employment figures printed softly. U.S. retail sales data for January will be released tonight, providing the first real gauge of the effects of the January 1^st, fiscal cliff tax increases on the wealthy. Two figures will be released, one that excludes car sales, both are expected to show 0.1% growth.
Softer than expected figures may support the Republicans stance against tax increases. This, in turn, may make it more difficult for President Obama to press forward his budget agenda; and vice versa. The USD reaction against the AUD to retail sales figures will be interesting. A slightly weaker figure may lend support to the AUD, as it prolongs the life of quantitative easing. Similarly, a slightly stronger figure will continue the status quo of easing and boost risk assets, supporting the AUD. On the other hand, a significant weakening in data may lead to a pull back in risk assets, pushing down AUDUSD. Likewise, a significant strengthening in data may prompt markets to speculate on a sooner end to quantitative easing, weakening the AUD.

EUR
AUDEUR had a bouncy week driven by trading of G7 headlines. AUDEUR dipped last week but found strong support at 0.7600 and recovered to 0.7693 at time of writing. The volatile week caused by various officials making statements on whether they thought the EUR was under, over or fairly valued. Political scandal engulfed Spanish Prime Minister Rajoy’s Popular Party causing some market jitters as it places the government’s reform agenda in danger.
The German ZEW Economic Sentiment index, a survey of investors on perceived economic conditions, will be released on Tuesday. Last month’s figure was 31.5, the highest reading since May 2010. German, French, Italian and Eurozone Preliminary GDP will be released for the fourth quarter on Thursday; all of which are expected to read slightly negative. Worse than expected figures may lead the EUR weaker.

The Bank of England (BoE) held the benchmark interest rate at 0.5% last Thursday. Mark Carney, the incoming Governor of the BoE, also delivered a more hawkish than expected speech voicing concerns of overshooting the inflation target.
After sliding for the last month against the EUR, the GBP seemed to bottom last week at 1.15, recovering to 1.1663 at time of writing.

By Chris Chandler

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