If we were to say that it has been another volatile and turbulent week across the globe that would be an understatement. The main theme of the past week has been risk aversion, with fear being the big driver across currency markets last week and it is safe to say that fear will continue to dictate currency moves in the near term.
Shadowed under the headline news of the G7 central banks getting together and cutting interest rates intra meeting, locally released data in New Zealand was the NZIER Quarterly Survey of Business Opinion (Q3) headline confidence improved, but activity measures weakened sharply. Resource and cost pressure measures also eased. Also out were REINZ House sales (September) in seasonally adjusted terms, sales volumes rose 2.9 percent and median days to sell were unchanged at 56 days. The median house price remained at $330,000.
The Reserve Bank of Australia’s move is a huge barometer and we could likely see a cut of at least 50bps or more in October by the Reserve Bank of New Zealand.
The Reserve Bank of Australia cut its policy rate by a massive 100bps to 6 percent – the biggest cut since May 1992 and the biggest move (in either direction) since December 1994. The RBA noted the rise in wholesale funding costs and said ‘an unusually large move’ was needed to ensure a significant reduction to borrowers. The Reserve Bank of Australia also expects that CPI will be around 5 percent in Q3, but the weak growth outlook means that inflation may now fall faster than the RBA previously expected.
Monday 13th – Retail Sales (Aug) mom
Thursday 16th – Business NZ PMI (Sep)
Monday 14th – NAB Business Confidence (Sep)
Friday 17th – Import/Export Price Index (Q3) qoq
Last week was full of unexpected moves – we saw the GBPNZD rate reach just above the 2.96 level, the highest we have seen the rate since mid 2006. The central banks in the UK, US, EU, Canada, Switzerland, South Korea, China-Taiwan and China-Hong Kong cut interest rates as an authored rescue plans from the governments.
After last week’s volatile antics we may see the rate settle for the time being and continue to hover in the lower GBPNZD 2.8’s but in today’s economic climate it is hard to make a forecast on any of the pairings.
Week ahead in the UK:
Monday 13th – PPI (Sep) mom
Tuesday 14th – Core CPI (Sep) mom & yoy
Wednesday 15th – Jobless Claims Change
Again as with the other currency pairings the blows that global share markets encountered and the central banks intra-meeting interest rate cuts sent the GBPAUD rate into volatile waters. The GBPAUD rate on Wednesday night reaching above the 2.6 level for a brief period of time before retracting back into the 2.45’s level and climbing again before close of play on Friday.
Again the economic conditions of late make it a precarious situation for one to try and get a gauge on the future path for the rate. If risk aversion continues to dictate the markets we may well see the Australian Dollar weaken further. For data out in the UK this week please see GBPNZD above.
Again post announcement of the uniting of the central banks the EUR appreciated greatly against the NZD last week. We saw the rate hit above the EURNZD 2.3 level, the highest seen since the middle of 1998. The rate then retracted slightly into the lower 2.2’s to then go back up into the 2.25 levels for close of play on Friday. Being a commodity currency the increase in risk aversion has really hit the NZD hard with people buying into the currencies historically deemed as safe havens i.e., the USD, GBP and the EUR.
The week ahead in the Euro zone:
Tuesday 14th – Germany ZEW Economic Sentiment Survey (Oct), Industrial Production (Aug)
Wednesday 15th – ECB’s Trichet Speaking in New York, CPI (Sep) mom & yoy
Friday 17th – Trade Balance (Aug)
Once again no surprises here, the EUR strengthening against the AUD on the back of the ECB and Reserve Bank of Australia interest rate cuts. The rate rocketed up towards the EURAUD 2.1 for a short stint on Wednesday evening before the AUD recovered slightly and drew the rate back into the early EUR 2.0’s.
The Australian Dollar will continue to tread carefully against the EUR and we may see some further EUR gains against the AUD this week.
It seems that the USD is coming out roses despite the US economy being thought of as the stem of a majority of the credit crunch problems and the shakes to global share markets and large financial institutions at present. The USD is riding the fact that it has always be considered as a safe haven currency as the US economy is deemed somewhat the worlds uber economy – the shakes felt worldwide on the currency markets have been feared well by the USD with people selling off from commodity currencies and buying into major players such as the US Dollar.
The week ahead in the US:
Wednesday 15th – ST. Louis Fed’s Bullard to speak at Economic Club of Memphis
Thursday 16th – PPI Ex Food & Energy (Sep) mom, Retail Sales (Sep) mom, Fed’s Beige Book
Friday 17th – CPI (Sep) mom, Initial Jobless Claims (w/e Oct 12), NAHB Housing Market Index (Oct)
Market volatility was not avoided by this pairing either, with the USD appreciating against the Australian Dollar on Wednesday night to fall into the 0.64 level. The AUD did strengthen slightly back into the 0.70 levels with the USD being the overall winner and the rate falling back to the 0.64 level at close of play on Friday.
The Reserve Bank of Australia did shock the markets with its 1 percent cut on its official cash rate to help fast track households by alleviating cash flow problems. This week the ball will most likely continue to be in the USD’s court with risk being the driver behind the rate.
In the battle of the commodity currencies the New Zealand Dollar made some gains on the AUD. On Wednesday evening the rate fell into the AUDNZD 1.10 before losing that ground and trading back in the AUDNZD 1.14 at close of play on Friday.
This week with data being light from both sides of the ditch we might see the rate calm down somewhat and trade within the AUDNZD 1.10 – 1.15 of course given last week’s events that would be a stab in the dark.
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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.