FX Commentary – 30th April, 2012

The US dollar finished last week on a low note against major counterparts with U.S stimulus expectations and moderate demand for risk assets guiding the way. In short, we have a Federal Reserve unwavering from their stance to keep interest rates at record lows while keeping the dream alive for those predicting further stimulus in the form of quantitative easing. Friday’s less than inspiring U.S GDP reading represented a significant collapse in USD demand which was particularly apparent when looking at the USDJPY pair which slid below the 81-handle late last week despite additional easing from the Bank of Japan late last week.  The pair made a notable decline on Friday finishing the week at 2-month lows around the ¥80.2 mark. Recent months have seen market participants recalibrate the chances of further policy easing, however feedback from the Fed suggest they will continue to err on the side of caution and maintain existing policy easing to avoid pulling the rug from under the market prematurely. Demand for risk was surprisingly stable despite further turmoil across the Atlantic after ratings agency Standard & Poor’s downgraded Spanish debt. U.S indices closed higher with the DOW and S&P rising 0.18 and 0.24 percent respectively.

Support for higher yielding assets alongside a withering U.S dollar has paved the way for Australian dollar strength which has made a break to the upside of 104 US cents. The local unit finished the week at 104.6 US cents and remains well bid in early trade, albeit in illiquid conditions. The main event for the Aussie this week will be Tuesday’s interest rate decision which is widely expected to see the RBA cut interest rates by 25 bps in response to weaker than anticipated growth amid a subdued inflation environment. With expectations of a rate cut well and truly baked into the market, Aussie dollar direction will be guided by the ensuing statement and of course if the RBA take the largely unexpected option of cutting more than 25bps. Other key directives from abroad this week include U.S non-farm payrolls on Friday with a host of top-tier economic data from the U.S earlier in the week including personal consumption expenditure and ISM manufacturing data.

Chris Gore

FX Commentary – 27th April, 2012

The Australian dollar maintained its current strength through the overnight sessions before it came under some slight pressure in the last hour of the US session.  European indices were in the green except for the Cac 40 and the Euro was well bid also until late in the US session.  US dollar weakness was helped with weekly unemployment claims that ticked up to 388,000 which were ahead of expectations.  The worry being that weekly claims have averaged about 8.5% higher in April than February and March’s average leading in next week’s unemployment rate print.  Stronger than expected US housing data did help mute the weak weekly claims as pending home sales rose 4.1% month on month.  The Euro was sold off in the last hour of the session shedding about half a cent whilst the Australian dollar shed 28 pips from its overnight high.

The Yen had an up and down trading run overnight depreciating through the start of the US session then strengthening back late to finish near where it started.  Traders are met with a raft of data today from Japan including manufacturing PMI, CPI, retail sales and then the all-important  Monetary Policy Statement where there is conjecture of if and how much stimulus will be triggered.

With positive leads from Europe and Wall Street the local equity market should be boosted early but this will do little to influence the Australian dollar with trade direction versus the all other currencies expected to be governed by Japanese data and the Bank of Japan’s decision when it announced.
At the time of writing the Australia dollar is buying 83.948 Yen and 1.0366 USD.

Joel Murphy

FX Commentary – 26th April, 2012

After taking a hit on Tuesday’s local CPI data, the Australian dollar has regained composure with a steady upward trajectory held over the last 48 hours. After looking decidedly vulnerable below the 103-handle, the local unit has bounced off 2-week lows of 102.46 US cents and currently steady above the 103.5 US cent levels.

Stronger than anticipated U.S earnings remain a positive thematic for risk sentiment with the premise of further U.S quantitative easing also providing a leg-up for risk contingent assets such as the Australian dollar. Uninspiring durable goods data failed to have a sustained effect on risk sentiment with stronger than anticipated earnings from tech giant Apple and the Fed’s economic assessment remaining the primary focus. We’re seeing the common theme of stimulus expectations guide U.S dollar positioning which was apparent overnight after Fed Chief Ben Bernanke signaled further stimulus remains a possibility.

As anticipated, the FOMC kept interest rates at record lows and reiterated their intentions to maintain an ‘exceptionally low federal funds rate through late 2014.’ True to form it was the ensuing statement and press conference that provided the key directive across markets. In his quarterly press conference Mr. Bernanke said the Federal Reserve remains “prepared to do more as needed to make sure that this recovery continues” with additional balance sheet actions “very much on the  table.” While upgrading their 2012 economic growth forecast, the Fed also trimmed 2013/14 their January forecasts but remain slightly more optimistic on U.S jobs outlook, upgrading their unemployment forecast for 2012/13 with the trajectory likely to see the official unemployment rate fall between 6.7 and 7.4 percent in 2014. Although the Fed have expressed a willingness to embark of further stimulus, in essence the central bank would need to see a deterioration and growth and weaker inflation to feasibly embark on another round of quantitative easing.

Local economic data today includes the Conference Board leading Index at 10 am AEST with the DEWR Skilled Vacancies index due for release at 11am AEST. The Aussie dollar is currently adhering to a short term ascending channel with support noted around 103.45 US cents, however we anticipate regional equities to set the pace during domestic trade with any upside likely to be contained around 103.8 U.S cents.

Chris Gore

FX Commentary – 24th April, 2012

The Australian dollar continued its slow decent after the close of our domestic session with a range of manufacturing and services PMI form Europe plus the earlier Chines Manufacturing PMI data helping see it fall to 1.027 USD.  The Euro also struggled through its main session as German, French and European PMI’s all were at or below expectations and except for German Flash Services PMI were a contractionary number.   As expected European indices all slide lower with the data mixed with increased political uncertainty from the French Presidential race and the Dutch Prime offering his resignation in response to plans for further austerity measures there being unable to be agreed in his minority coalition government.

Weakness from the European session bled into the US session with both the Dow Jones and S&P500 sheading 0.78% and 0.84% respectively.  Although both indices did claw back some of the losses and were matched with risk currencies late in the US session.  The Aussie pared back to 1.031 USD and Gold recouped 90% of what it has lost earlier in the night to be trading at 1637.60 USD an ounce a short time ago.

Today’s session will of course be focused on the 11.30am CPI print after RBA Governor’s check mark statement for a rate cut next month.  The downside prevails with this print with expectations dropping for the CPI headline and weighted numbers in the wake of yesterday surprise PPI contraction.  The Australian dollar sits flat in the wake of the close of the US session at 1.0313 USD.

Chris Gore

FX Commentary – 20th April, 2012

Global markets remained under pressure overnight with negativity both sides of the Atlantic promoting losses across risk sensitive assets. Weaker than expected US data saw market participants positioned defensively after data on employment, manufacturing and housing failed to meet estimates. The number of citizens applying for unemployment benefits recording 386,000 against expectations of 370,000. The Philadelphia Fed manufacturing gauge fell to an index level of 8 from a previous 12.5. Existing home sales slid 2.6 percent in March missing estimates of 0.7 percent growth. While stronger-than-expected US data has been the common theme in recent times, a general lack of continuity continues to plague the market with little in the way of solid evidence to suggest the economy is on a sustained upside trajectory.

The economic health of the Euro-region remained a stumbling block despite well-attended debt Auctions from Spain and France. Widening yields spreads between peripheral nations and the perceived safety of German debt remains the common theme with rising Italian and Spanish yields signaling a further breakdown in confidence in the region. Conjecture over a near-term downgrade of France compounded existing fears of the systemic flow-on from peripheral nations to the heart of the Euro-zone.

The Australian dollar remained under mild pressure throughout the session but support above 103 US cent contained the selling to settle in to a 50 pip range throughout US trade. Barring a significant deterioration in sentiment across regional equity markets, we anticipate this narrow range between 103 and 103.5 US cents to hold up throughout domestic trade. The local day ahead will see the release of 1Q import and export price indices at 11.30 AEST.

Chris Gore

FX Commentary – 19th April, 2012

After yesterday’s bumper sessions it was no surprise the global markets were a little of the boil last night with the majority of bulls in the market waiting for tonight’s Spanish bond auction to see if European risk has really eased.  News was positive from the UK which had a surprise fall in the unemployment rate down to 8.3%, the Pound was well bid and broke through the 1.60 USD mark for the second time this month.  Helping to push the Pound up was Bank of England’s Adam Posen who in the Monetary Policy Committee minutes has ended his arguments for further stimulus for the UK economy.  As he had been a major driver of recent asset repurchasing scheme the chances of a further round in May have dissipated.   With European weakness still on the table the Euro is now buying it lowest rate against the Pound since late August 2010 at 0.8187 earlier this morning.

After such a strong push to devalue its currency through February and March it was no surprise that the Bank of Japan came out after its push had stalled recently, with the Bank of Japan Deputy Governor Kiyohiko Nishimura comments putting further stimulus in play.  The comments helped the US and Australian dollar hit the 81.5 and 84.5 Yen respectively early in the European session.  Yen traders will have their eyes firmly fixed on next week’s Bank of Japan meeting, with further comments expected in the lead in.

In Switzerland the Government ratified interim Chairman Thomas Jordan move to full time.  Jordan was quick to state that “I stand for the continuity of the SNB monetary policy.”  With the ceiling on the Euro/Franc expected to remain in the near term at 1.20.

With European and US indices weaker overnight after a lack of data to drive trade in both regions the Australian dollar also struggled overnight.   At the close of the US session this morning it sat at 1.0359 USD and we are not expecting too much bounce today with most markets waiting to get through tonight’s Spanish 10-year bond auction.

Joel Murphy

FX Commentary – 18th April, 2012

Traders overnight saw the screens covered in green with equities and risk currencies have a bumper night.  The Australian dollar was able to shrug off yesterday’s RBA board minutes which put next week’s inflation print as the only thing in the way of a rate cut next month.  The dollar put on 100 pips to peak at 1.04176 USD as newswires across the two sessions saw predominately positive prints and results announced.  The European session was marked with a Spanish debt auction that had hit its maximum target with 3.18 Billion Euros of bills sold leading into a sale of 10 year bonds on Thursday .  The session was further buoyed with German business confidence rising for the fifth straight month and outperforming expectations to come in at 23.4.  European indices the DAX and CAC40 were both up over 2.5% and this helped maintain the Euro above 1.31 USD after its 100 pips move yesterday.

Strong corporate earnings from the States and confidence from the European session helped continue the positive trade on risk assets through to the close on Wall Street.   Although building starts fell to a five month low this was pared with building permits rising, but traders focused more closely on strong earnings from Yahoo, Coke and Johnson and Johnson.   The Dow Jones index and S&P 500 were up 1.5% and 1.55% respectively jumping up the open and maintaining gains through the session.

Although rates stayed on hold in Canada at 1.00%, analysts were quick to jump on the back on the statement which had the Bank of Canada opening the door for a rate rise in the future with its economic performance and inflation outperforming its January estimates although this is not expected until the end of this year.  The US dollar went from buying 1 Canadian dollar at the end of our domestic session to this morning now buoying 99 Canadian cents.

The Australian equity market is expected to follow global equity markets on the open this morning with futures markets point towards of a gain of more than 1%.  The Australian dollar has eased after the close of the US session just below 1.04 USD.  We do have the MI leading index as our only economic print and don’t expect this to have a major effect with the performance of equity markets linked closely to the Aussie dollars performance today.

Joel Murphy

FX Commentary – 16th April, 2012

Following on from Friday the Australian dollar has kicked off the week under pressure with price action making a break to the downside of 103.5 US cents. Demand for the local unit eroded on Friday after Chinese GDP fell short of expectations to record annual growth of 8.1 percent against the expected 8.4 percent. Local employment data created an inflection point on Thursday but fears of a more pronounced slow-down in China was the dominant influence. Market participants may be well-informed of China’s intension to engineer growth sustainability, however fears of a hard-landing scenario remain the key driver and Friday’s data does little to silence the skeptics. Meanwhile, the Chinese government has taken further steps to increase the flexibility of the Chinese Yuan announcing widening of the trading band around the official central parity rate. The free trading zone around the daily central parity rate has now been increased from 0.50 percent to 1 percent.

The health of European peripherals will remain under the microscope this week with a Spanish debt action on Tuesday and Thursday. Debt markets are often the best barometer of sentiment and with Spanish and Italian yields approaching pre-LTRO levels, it’s apparent the market psyche has taken a negative course. This week will see the G20 finance ministers; the IMF and World Bank reconvene in Washington with the aforementioned Euro-region concerns no doubt a primary discussion point.

Headlining local data this week will be the release of the RBA policy meeting minutes on Tuesday. While Stevens and Co kept benchmark rates on unchanged at 4.25 percent, the ensuing statement erred to a dovish tone with the board noting “the pace of output growth to be somewhat lower than earlier estimated,” while expressing the need to evaluate forthcoming inflation data to ascertain the viability of an interest rate cut. Subsequent price action on the Australian dollar made clear the markets dovish interpretation with money markets showing an all but certain rate cut in May. In typical style, market participants will be wading through the finer points of the minutes for further clues on the RBA’s policy outlook; however with near-term rate cuts well and truly baked into the market we anticipate limited downside for the Australian dollar on the release. Other less valuable local directives this week include new motor vehicle sales, Westpac leading Index, NAB business confidence and import/export price index. Ultimately the week ahead will see the local unit remains at the mercy of global market directives with the reemergence of European concerns a primary stumbling block for risk currencies in general. At the time of writing the Australian dollar is buying 103.3 US cents.

Chris Gore

FX Commentary – 13th April, 2012

After enduring a corrective period in recent days, the Australian dollar has sprung back to life overnight coinciding with a decidedly positive European and U.S session. The local unit found its feet after yesterday’s employment data and the momentum was kept alive throughout European and U.S trade after market participants were encouraged by easing Italian and Spanish bond yields, solid Chinese new loan data and comment from key Fed officials.

In an effort to guide market expectation, New York Fed President William Dudley indicated the need for accommodative policy despite recent economic improvements. In short, we’re seeing a ‘don’t count your chickens before they hatch’ type mantra from Fed members which is an encouraging sign for the stimulus-dependant U.S economy. Mixed economic feedback from the United States failed to derail a generally supportive environment with sentiment barometers such as the S&P500 and DOW rising 1.38 and 1.41 percent respectively.

The key directive locally today will come from Australia’s largest trading partner with Chinese GDP, retail sales, industrial production and fixed asset investment on the docket. Growth in China is expected to have further moderated in the first quarter to a yearly pace of 8.4 percent from a previous 8.9 percent. China-contingent currencies will be the first the react with a deviation from estimates likely induce a similar short-term response on the Australian dollar. Market participants may be well-informed of China’s intension to engineer growth sustainability, however fears of a hard-landing scenario remain a dominate force behind global markets – should today’s number sink convincingly below estimates it will serve reinforce the view of those expecting a pronounced deterioration. Rumors suggesting today’s GDP will outpace expectations are circulating which may serve to exacerbate downside should the official print fail to inspire.  At the time of writing the Aussie dollar is buying 104.35 US cents.

Chris Gore

FX Commentary – 12th April, 2012

Global markets breathed a sigh of relief overnight as buyers re-entered the market after what has been a difficult start to April.  Spanish bonds yields eased and the Italian government was able to auction off 11 billion Euros of bills, its target for the sale and this supported some respite for risk assets with European indices all in the green, the Euro ticking up to a high of 1.3156 USD and followed by well performed US indices.  The Dow Jones which has shed over 500 points this month improved by 0.7% bettered by the S&P index which was up 0.74%.  As expected through this type of session the Australian dollar remained we bid and hit highs of 1.033 USD after trading as low as 1.0225 USD at the start of yesterday’s domestic session.

US budget data which showed that its deficit widened to $198.2 billion in March, showing what a tightrope that the US economy still walks on.  Although it didn’t have any short term impact overnight, those looking at the US Economic outlook for long term currency moves will see the difficulty of an economy that is growing slowly but only through a trillion dollar deficits.   The negativity of this print was pared by Fed Reserve’s James Bullard stating that an improved US economy may push the unemployment rate down to 7.8% this year.

The local session today will hinge predominately on the employment change with six and a half thousand jobs expected to be added.  With 10-15 thousand jobs needed each month to keep the unemployment rate on hold, the rate is expected to move from 5.2% to 5.3%.  With the last four prints well wide of forecasts it creates a lot of uncertainty leading into this print at 11.30am, and with 3 of those in the negative it opens more chances of a downside result.

At the time of writing the Australian dollar is buying 1.0304 USD

Joel Murphy