FX Commentary – 22nd March, 2012

Global growth concerns continued to resonate across markets overnight providing a solid platform for the safe haven currencies to continue their north-bound trajectory. Chinese growth concerns saw the Australian dollar take a leg-down in the ensuing period of yesterdays uninspiring Chinese PMI data and the momentum continued as the Euro region’s largest economy Germany posted disappointing PMI in both the manufacturing and service sectors. German manufacturing PMI fell to 48.1 in March from a previous 50.2 – against economists’ expectations of a rise to an index level 51.

The Aussie dollar took a hit after yesterday’s Chinese PMI data with price action falling through the 104 handle and remained on a downward course overnight to lows of 103.35. The latter half of U.S trade saw the local unit regain some composure, albeit remaining vulnerable below 104 US cents. The Japanese Yen wore the ultimate safe haven tag overnight with solid gains against both risk currencies and its safe haven counterpart the US dollar. The USDJPY pair has lost around 1 percent with price action retreating through ¥83 to lows of ¥82.32. At the time of writing the US dollar is buying ¥82.5.

A small concession was a solid weekly jobless claims report from the U.S which showed the number of citizen filing for unemployment benefits fell to a 4-year low. U.S equity markets closed lower with the DOW and S&P falling 0.60 and 0.72 percent respectively.

Despite losses against the Yen, the US dollar maintained its winning streak against major counterparts with the CAD and Aussie the biggest losers. In the absence of any scheduled releases locally, we expect the Aussie dollar to remain under pressure throughout the domestic trade should regional equity markets follow on from the less than inspiring off shore trade.  At the time of writing the Australian dollar is buying 103.9 US cents.

Chris Gore

FX Commentary – 21st March, 2012

Following from yesterday’s domestic trade, much of the focus remained on China overnight as concerns of a slow-down weighed on commodities and risk assets. The US dollar once again became the currency of least resistance with solid gains against commodity counterparts the Aussie, Kiwi and to a lesser degree the Canadian dollar.

Global mining heavy weights BHP and Rio yesterday warned growth from their largest customer China is waning, with demand for likely to moderate as the world’s second largest economy comes off the boil. China recently announced a revised growth target of 7.5 percent in 2012 after seven years at 8 percent and trade data released earlier this month showed the largest trade deficit in over two decades.

Clearly any signs of a Chinese slow-down will manifest negatively in risk currencies such as the Australian dollar; however the question remains, are we witnessing a hard-landing scenario in motion or China’s grand plan to promote sustainable long-term growth? Whatever the case, the momentum both locally and abroad – for the most part – has been against the Australian dollar, and we expect a sell into rallies to remain the primary theme in the near term. With the USD’s safe haven status well and truly intact, it remains the currency of least resistance with supportive behavior noted in both negative and positive market environments. US equities succumbed to a moderate selling overnight as China-led concerns dominated despite encouraging U.S housing report which showed a strong rise in building permits. The DOW and S&P closed down 0.52 and 0.30 percent respectively.

At the time of writing the Aussie dollar is buying 104.8 US cents, recovering slightly from overnight lows of 104.56 US cents.

Chris Gore

FX Commentary – 20th March, 2012

With Greece at least off the table for the near-term and European confidence slowly emerging, currency markets were left to ride the coattails of equity markets overnight. European indices provide little in the way of solid leads however the news of Apple’s share buyback plans helped buoy US equities with the NASDAQ up 0.75% and the S&P up 0.40% by close of business.

The Australia dollar slipped early in the European session versus the Greenback but was confidently traded through the US session rising from lows of 1.0563 to peak at 1.0635 trading in parallel to the US indices.

The Euro also is reapproaching monthly highs with the downside risk of Greece unwinding from trade in the Euro.  It broke back past 1.32 USD and is only 50 pips away highs it hit 11 days ago helped by an orderly auction of Greek default insurance yesterday, with traders unwinding positions on the Euro linked to the risk associated with the default chances.

The news also saw a steady depreciation of the Yen versus the Euro which saw the EURJPY pair break through the key level of 110 putting sustained gains which puts the pair only 1 yen away from hitting post October 31st Bank of Japan intervention highs.

After a solid night on the commodities and metals markets the Australian dollar has remained above 1.06 USD however pared gains in recent hours.

Locally we have Monetary Policy Meeting Minute to be released at 11.30am and after yesterday’s comments by Governor Stevens we may see more of a bullish tone.  There is a bank holiday in Japan today so we should see more subdued trade with the Yen after it approached resistance for the third time in the last 4 days overnight (AUDJPY) at 88.6 Yen.  At the time of writing the Australian dollar is buying 1.0606 USD.

Joel Murphy

FX Commentary – 19th March, 2012

After a solid week across global equities, markets finished mixed on Friday with little in the way of conviction to build on gains seen throughout the week. In economic news, U.S consumer prices recorded annual growth of 2.9 percent in February unchanged from January’s reading. Industrial production failed to meet expectations to record no change in February against previous growth of 0.4 percent. The University of Michigan consumer confidence numbers came in a fraction softer than anticipated recording an index level of 74.3 in March from a previous 75.3. Economist’s estimates showed a slightly higher reading of 75.6 was expected.

Despite Friday’s mixed economic reports, on balance, we’ve seen optimism return to global markets. Relative calm in the Euro-region with solid economic reports from the United States has translated positive sentiment was saw the DOW and S&P both advance 2.4 for the week. It is however important to note the Federal Reserves’ role in underpinning recent strength with the FOMC policy meeting earlier in the week showing the Fed will continue with accommodative policy initiatives despite a more optimistic assessment of the U.S economy. Despite this, expectations surrounding further stimulus has eased, in turn, we’ve seen recent supportive behaviour towards the US dollar. We did however see some of the sheen come off the greenback on Friday in the ensuing period of February’s inflation data. With the headline number unchanged and in-line with expectations and the core reading a fraction softer than anticipated, it seen provides scope for the Fed to maintain an accommodative policy stance and to a small degree keep the dream of further quantitative easing alive.

The Week ahead in the U.S will see the health of the housing sector take centre stage with building permits, existing and new home sales on the docket. Market participants will also watch closely comment from Fed officials with the following Fed representatives scheduled to speak.

-    New York Federal President Chairman Dudley (Monday)
-    Fed Chairman Ben Bernanke – Lecture at Washington University (Tuesday)
-    Minneapolis Fed President Kocherlakota – St Louis (Tuesday)
-    Chicago Fed Evens (Thursday)
-    St. Louis Fed President Bullard (Friday)

A$ pares weekly losses; looks to RBA, U.S housing.

Locally, it’s a quiet week from a data perspective with the RBA’s policy meeting minutes the headline event. In Short, the RBA has acknowledged improvements across global markets but remains at the ready to ease policy. The last paragraph in the ensuing correspondence sums it up nicely saying “Should demand conditions weaken materially; the inflation outlook would provide scope for easier monetary policy.” While the United States is showing signs of regaining economy composure, the local economy continue to show signs of strain with a growing disparity between the ‘once in a century mining boom’ and other sectors such as manufacturing, which is an overall a weaker hand squeezed out the market courtesy of a strong Australian dollar.  The local unit has kicked off the week in solid form with price action currently testing 106-figure.

Chris Gore

FX Commentary – 16th March, 2012

The Australia dollar was able to rebound from the lows it hit yesterday this time, climbing back above the 1.05 USD mark and peaking 50 pips higher than that before retracing back to 1.0528 at the end of the US session.  A solid night across global stocks helped drive demand for risk assets overnight after US dollar demand had governed trade for the best part of this week.  A key point that was breached was the S&P which went above 1,400 point for the first time in four years with US equities on track for one of the best quarters of gains in 14 years.   Markets confidence was helped with the Philly Fed Manufacturing Index and Empire State Manufacturing Index both increasing in level which is a continued sign of further jobs to be added in the near term.

Today we have Monetary Policy Meeting Minutes due for release which will be interesting read after the policy moves made by the Bank of Japan regard their recent asset repurchasing and their plans now that the Yen has depreciated so significantly in the last 6 weeks. The Yen did strengthen overnight from the lows it reached yesterday with USDJPY slipping back from 84.16 to now sit at 83.5.

As mentioned that Australian dollar has slipped back from its overnight highs but with a stronger day expected on Australia equities and little in the way of local data due for release we should see it tread water above 1.05 USD.  Later on tonight we do have US CPI data for release but we are not expecting any chance of a serious deviation from 0.2% last month’s Core figure.

Joel Murphy

FX Commentary – 15th March, 2012

USD dollar strength was the primary theme once against overnight, but true to recent form it wasn’t the typical risk-off scenario which led to a stronger greenback. The Dollar gained as expectations of a third round of quantitative easing dissipated and US economic growth outlook continues to build. Helping the trend was a widening of the US current account in the fourth quarter to 124.1 billion with import stocked by consumer demand.   Global stocks were solid with Euro Stoxx 50 up 0.54% and US indices steady, yet the Australian dollar struggled slipping below 1.045 USD.

Gold also continued to be sold off shedding more than $72 through the course of this week now trading around 1643 USD an ounce.  The US session also saw the Dollar hit 11 month highs versus the Yen now buying just short of 84 Yen and from a graphical perspective there has been no significant pull back in the pair just a 45% degree angle northbound from the start of February.

The news wasn’t as positive from the UK with unemployment benefit claims climbing more than expected to 7,200 new claims and the last time this figure actually contracted was March last year showing continued concerns for the UK economy.  The unemployment rate however stayed at 8.4%, still at a 16 year high as continued quantitative easing in the UK fails to really kick-start the economy in the wake of the ongoing debt drama’s in Europe.  The data failed to send the Pound in any clear direction versus the US dollar as it trades at 1.566 USD quite close to where it opened trade this week.

Today’s local session is sees Melbourne Institute Inflations expectations and New Motor Vehicle sales due for releases at 1130 AEDT.  Neither piece of data is expected to really drive trade through today with a subdued local session to follow today with no other key data out from regional markets. 

Joel Murphy

FX Commentary – 14th March, 2012

A succession of positive events kept market participants in good spirits overnight with global equity markets recording solid gains. The German ZEW series survey outpaced expectations with the economic sentiment index rising to 22.3 from a previous 5.4. Analysts had anticipated a moderate rise to a level of 10. Across the Atlantic, the S&P500 gained 1.8 percent with investors finding inspiration in a solid U.S retail sales report which showed annual growth of 1.1 percent in February from a previous 0.6 percent rise.

As anticipated, the Federal Reserve kept their benchmark interest rate on hold near zero reiterating their exceptionally low federal funds rate mantra through to late 2014. In a statement the Fed acknowledged improvement in the U.S jobless rate and general easing in global financial market strains, albeit remain cautious given the significant risks still in play. The Fed also reiterated their view on inflationary pressures. While acknowledging energy prices may place upward pressure on inflation they expect this to be temporary stating “inflation will run at or below the rate that it judges most consistent with its dual mandate.”

Notably, the greenback has responded in kind to the latest round of outperforming data with solid gains noted against major counterparts. With its traditional safe haven credentials in-tact, the US dollar remains a beneficiary not only when the chips are down but also when major data points – such as Friday’s non-farm payrolls and the overnight FOMC policy statement – force a re-calibration of quantitative easing expectations. In short, the US dollar has intermittently enjoyed two pillars of support and a positive assessment of the economy by the Fed, backed-up by improvements in the economy which decreases the chance of another round of quantitative easing.

For the most part, the AUDUSD pair failed to benefit from a decidedly risk-on session with price action falling to lows 104.85 but still managed to regain composure in the latter part of US trade. At the time of writing the local unit is buying 105.4 US cents – with little in the way of major event risk , we expect regional equity market to remain a primary barometer in the local session with selling pressure to be met with support at 105-figure and overnight lows of 104.85 US cents a secondary level of support.

Chris Gore

FX Commentary – 13th March, 2012

With little in the way of major market moving themes, U.S equities managed to squeeze out mild gains overnight ahead of Tuesday’s much anticipated FOMC policy meeting. Following on from Friday, the U.S dollar has maintained mild north-bound trajectory against commodity currencies with the Aussie dollar falling to 7-week lows of 104.72 before clawing back some ground in the latter half of U.S trade. We’ve seen a natural move away from commodity bloc currencies in response to yesterdays Chinese trade data which showed the largest trade deficit in over two decades. Also promoting weakness across the risk spectrum was Italian GDP release which showed a contraction of 0.7 percent in the 4Q 2011 following a 0.2 percent contraction in 3Q. The local unit has recovered some losses in domestic trade; however remains capped around current levels of 105.4 US cents.

The headline market directive this week will no doubt be tonight’s Federal Open Market Committee meeting. With no change expected to the Fed’s policy stance, the focus will of course be on the language of the ensuing statement but for those waiting for Bernanke and Co to signal the potential for QE3 will likely be disappointed. In a recent testimony to the House of Representatives, Fed President Bernanke provided a less than encouraging assessment of the U.S economy at the same time giving little inspiration for those betting on another round of quantitative easing. While we expect improvements in US employment outlook is likely to rate a mention, it unlikely to see the fed waver from its commitment to keep the federal funds rate at low levels until 2014.

In keeping with the recent theme of stronger employment data, Friday’s official jobs numbers once again outpaced expectations. The U.S economy added 227,000 new jobs in February surpassing economist’s estimates of 210,000. Although it wasn’t enough to take a slice out of the 8.3 percent unemployment rate, market participants were encouraged by upside revisions to December and January numbers signaling the U.S may be finally waking from its economic slumber. Notably, the greenback has responded in kind to the latest employment data with solid gains noted against major counterparts. With its traditional safe haven credentials in-tact, the US dollar remains a beneficiary not only when the chips are down but also when major data points – such as Friday’s non-farm payrolls – force a re-calibration of quantitative easing expectations. In short, the US dollar has intermittently enjoyed two pillars of support.

In terms of local market directives, the rest of the week is littered with mid-tier themes to guide the Aussie dollar, the overall trend however will be discovered abroad with U.S retail sales, FOMC and consumer price index just a few of the top-shelf events to come. Local highlights include consumer inflation expectations and the RBA’s quarterly report on Thursday.

Chris Gore

FX Commentary – 9th March, 2012

There were no surprises which event dominated currency trade activity overnight with the Greek private bondholder’s agreement on a swap deal taking focus, without the deal Greece will not receive another bailout.  Reports a minimum participation of 75% had been reached allowed markets to keep the status quo. Shares and risk currencies rose on optimism of the deal’s success reflected by the DAX and CAC40 up 2.45% and 2.54 respectively.  The Australian dollar reached at 1.06679 at the time the deadline was reached, 2200 GMT.

The two overnight sessions were also party to a host of central banks keeping rates on hold including the European Central Bank, Bank of England and Bank of Canada.  No changes were made to quantitative easing either and this was all expected by the market.    What did buoy markets was the ECB’s Mario Drag comments that “Inflation rates are likely to stay above 2 per cent in 2012” signally they expect some growth this year. German Industrial production output rose more than expected at 1.6% with construction fuelling the rise.  The Euro was traded solidly through both sessions gaining over a cent versus the US dollar and peaked few hours ago at 1.329 USD.

The last day of the week will define what range the Australian dollar trades for next week, we have Chinese CPI data out at lunch with a contraction expected from 4.5% to 3.5% in the print.  Any significant diversion will see the Australian dollar either trade north of 1.07 or south of 1.06 USD if CPI is lower than expected.  Then tonight we have Non-farm payroll data from the States, which after ADP payroll print slightly above expectations earlier in the week giving confidence that expectations will at least be met of 209,000 new jobs with unemployment steady at 8.3%.

At the time of writing the Aussie dollar is buying 106.4 US cents.

Joel Murphy

FX Commentary – 8th March, 2012

After Tuesday’s slide, risk assets staged a recovery overnight with solid jobs numbers in the U.S providing the inspiration for market participants to re-enter the market ahead of Friday’s non-farm payroll release.  A gauge of private sector jobs by payroll company ADP employment services showed hiring rose by 216,000 in February from a previous 173,000. This bounce in private sector jobs is seen as a pre-cursor to the main event on Friday.

Earlier in European trade, a steep drop in German factory orders kept the Euro on a downward lean, but after a brief drop below the 131-handle the shared currency regained composure. We’re seeing a little more optimism surrounding the Greek bond swap deal overnight with Societe Generale and UniCredit announcing they will be participating in the program which requires at least 75 percent participation to avoid enacting the controversial Collective Action Clauses (CAC’s). Passing of these private sector write-downs is a critical for Greece to secure the EUR130 euro bailout in order to avoid a hard default scenario with maturing debts due on March 20.

The Australian dollar underperformed its commodity counterparts overnight but performed solidly against both the perceived safety of the US dollar and Japanese Yen. The AUDUSD pair managed to regain composure after sliding towards 105 US cents in the ensuing period of yesterdays GDP release but gains were capped below a channel of resistance just shy of 106 US cents. The primary directive for the local unit today will be employment numbers due for release at 1130 AEDT which is expected to show the Australian economy added 5,000 new jobs in February from a previous 46,300. Clearly, any significant deviation from estimates has the ability to materially shift price action outside of its current range between 105 and 106 US cents however with a solid platform built overnight; a less-than-inspiring number should see the losses contained above 105 US cents in the domestic session. At the time of writing the Australian dollar is buying 105.8 US cents.

Chris Gore