AUD: continues to slide
Month in Review – The markets have been very busy since the start of February. The Australian Dollar’s dramatic slide against the USD eased slightly upon financial market expectations that the first interest rate rise in the US may now only occur in Iate 2015, as opposed to June.
Against the EUR the AUD has risen from lows of 0.676 to 0.7118. This occurred off the back of the European Central Bank deciding that starting in March, it will purchase EUR 60 billion of securities each month. Further reasons for the rise can be found in Greece’s debt and a possible ‘Grexit’ from the Eurozone.
The Key Trends – Most notable for the AUD of late however, has been the RBA’s decision to keep rates on hold at 2.25%. The main point of note from this decision was that the RBA has maintained an easing bias and predictions are strong for another cut to occur in May. Further, the AUD is still considered to be above its fundamental value in the wake of the drop in commodity prices.
What’s Next? Recent events, beginning in early March have seen the AUD continue its negative trend. Most notable was a strong release of Non-Farm figures in the US, which saw the AUD drop out of its February range of 3 cents and reignite six year low talk. Further drops in commodities (notably iron ore) facilitated this drop.
Over March the focus will be on market conversations that give possible direction on when the next rate cut will occur – and in the US when the rate rise will occur. After strength from the US labour figures close attention will be paid to AUD job figures. A further drop against the USD is clearly desired by the RBA with Governor Stevens noting last week that a lower exchange rate is likely to be needed to achieve “balanced growth in the economy.”
USD: steady February for the Greenback
Month in Review – February saw the USD trade in a tight range against most major currency pairs. The USD struggled to see any major gains following a decline in retail spending from 0.9% in December 2014 to 0.8% in January 2015, suggesting consumers are reluctant to spend their extra discretionary budget, which has been freed up by falling prices at the petrol pump.
The Key Trends – The US will be looking to wage growth & employment figures as the main catalysts in changing their current stance on interest rates. If March releases meet or miss expectations, then any changes to Yellen’s & the Federal Bank’s current conservative outlook are unlikely.
What’s Next? Strong non-farm payroll & unemployment rate figures released on March 7 have sparked up speculation as to the US having motivation to increase interest rates sooner rather than later. Yellen’s previous statements were that if the data remained on track & didn’t exceed expectations, they would be patient on their monetary policy stance; however with several pieces of key data beating forecasts, economists believe this could mean an interest rate move earlier in 2015.
GBP/AUD reaches highest levels since August 2009
Month in Review – The Pound soared against the struggling Aussie in February, touching 2.0017 after Mark Carney seemed bullish on the British economy. The key points from Carney’s press conference, which leaned towards a positive outlook included “wages and oil will boost solid spending” ; “appreciation of Sterling pushed inflation lower, but it’s not the most important factor” and, “we do monitor it”, but overall Carney did not seem worried.
The Key Trends – GBP/USD suffered a similar story as the previous month wherein positive data pushed the Pound to a high of 1.5554, only to slide at the back end of the month due to much better than expected jobs & unemployment data from the US.
What’s Next? The pounds collapse from 1.5554 to 1.5060 was arguably more a question of “what’s right in the US” rather than “what’s wrong in the UK” and markets will be looking to see a potential correction in March; however speculation of a Fed rate hike in mid-2015 will be positive for the greenback.
EUR: continued uncertainty for single currency
Month in Review – February was a mixed month for the EUR, overall still trading under a huge amount of pressure, though there were some positive advances that investors believe will bode well for the currency in the longer term. Markets learned that the disparity in fiscal policy between the ECB and the U.S Fed is widening, emphasised by the Eurozone’s Quantitative Easing (QE) program and US growth figures.
The Key Trends – The size and metrics of the QE program have heavily weighed on the short-term potential of the Euro, though like the US QE story, if handled correctly the program could be extremely effective for the long-term. Any rallies higher were sold with aggression, and technical support levels were often mere bumps in the road for the struggling Euro.
What’s Next? Time is seriously running out for the ECB to make a decision over the fate of Greece and their inclusion in the Eurozone. This ambiguity has heavily dampened any remaining confidence from European businesses and international investment. When coupled with questions over the QE program’s effectiveness, markets have stuck to the ‘sell the rally’ strategy, as the recent stretch of better than expected data failed to lessen any of the concern over the Euro-Zone’s economic trajectory.
NZD: Kiwi at all-time highs
Month in Review – The NZD reached record highs against the AUD trading at 0.9722, the highest level since the Kiwi was floated in 1985. This was supported by a sharp sell-off in the Euro as investors are unsure as to what decisions the ECB will make on their quantitative easing program. Also adding fuel to the Kiwi’s highs were headlines from S&P agency stating that Australia’s AAA rating could be at risk due its budget woes.
The Key Trends – ASB economists have raised their forecast for Fonterra’s milk price both this year and next by more than 6%. Also Whole Milk Powder (WMP), New Zealand’s dominant commodity export, increased by 13.7% – a classic short squeeze in the market and some panic buying by dairy product end users, as they assimilate to the news of lower production from NZL due to dry climatic conditions.
What’s Next? Looking ahead, there is no avoiding the fact that the New Zealand economy is performing well above the level of others, and the current 3.5% interest rate levels make it stand out as an attractive investment destination in the world of zero returns and considerable economic risk.