The NZD has held its ground against the majors with the exception of the JPY over the last 24 hours after as number of releases failed to provide a strong direction to trade.
The local business day was dominated by Australian announcements which have again highlighted the country’s economic strength. Business confidence rose by three points to a seven year high of 19. The trade balance figures for October also beat forecasts coming in at $16.2 billion.
Overnight the news was not so encouraging though as the major credit agencies sounded warnings on sovereign debt levels. S&P recently released a warning that Greek banks were the riskiest in Western Europe and this has been backed up by Fitch which reduced Greece’s rating from A- to BBB+. Not to be left out Moody’s released a statement saying that fiscal crises in the developed economies could drag on for “several years”. The data increased risk aversion which benefited the USD at the expense of the EUR.
Tomorrow morning the RBNZ will release their decision on interest rates. The bank has been at pains to underline it commitment to keeping rates low for some time now so no change is expected.
• 09 December 09: AU Trade Balance (Oct)
• 09 December 09: NZ Card Spending (Nov)
• 09 December 09: JP GDP (QIII)
• 10 December 09: AU Employment Rate
• 10 December 09:NZ RBNZ OCR
By Sam Spink - McCarthy, Corporate Dealer
]]>The Aussie Dollar retreated overnight as a result of further concerns from international markets saw continued selling of riskier assets and currencies. Whilst managing to hold above 0.9000USD, the Aussie could find itself lower today if local data fails to impress.Last night, ratings agency Fitch lowered Greece’s credit rating from A- to BBB+. The reduction also came with warnings for the US and UK, who both have massive budget deficits, to improve their public finances or risk having their ratings downgraded. German Industrial production also fell unexpectedly, reporting a 1.8% drop against the expected rise of 1.1%.
Wall St fell 1% overnight as poor outlooks from 3M and McDonalds renewed fears that sluggish consumer spending could threaten the economic recovery in the US. Commodities weren’t left untouched either with Oil falling for a fifth straight session, now below $73 a barrel. Gold continued its slide with the USD rise, to be just above $1,100/oz.
Continued talk from RBA Gov Stevens of further rate rises from the banks rather than the RBA itself had no real impact. Traders and investors are more focused on economic data pre Christmas and their bearing on interest rates for 2010 and thus currency movements.
Locally today sees the release of Home Loans and Trade Balance figures. Weak data will bring the Aussie under further pressure with the 0.8900’s in sight.
By Alex Molesworth, Corporate FX Dealer
]]>Safe haven currencies JPY and USD rose broadly as traders and investors look to cut risk over the latest slew of financial information. The JPY surged after a report from the Ministry of Finance showed Japan posting a current account surplus of 1.398 trillion yen for the month of Nov. Analysts also commented that the yen would return to being the funding currency of choice after a strong US job data release on Friday.
Dubai debt issues deepened after Moody’s downgraded six Dubai-linked issuers after they concluded that no “meaningful” government support would be provided for firms like DP World. Renewed worries discourages risk appetite and lifted the US dollar as investors unwound “carry trades” that involves borrowing the US currency at low rates to finance purchases of higher-yielding currencies and assets.
Sterling weakened on Tuesday over deepening concerns of Britain’s financial health, poor economic data and a hefty fall in the RBS shares. Sterling fell to a six-week low of $1.6254 against the USD as traders eargerly await on the upcoming UK pre-budget report (PBR) in which finance minister Alistair Darling is expected to give more information on how he will reduce the 175 billion pound budget deficit. Britain’s borrowing has captured the attention of ratings agency Moody’s Investors Services as they released a report on the fiscal challenges facing governments of triple-A rated countries like UK and commented their current fiscal position which “may test the AAA boundaries”. Meanwhile, Royal Bank of Scotland shares fell almost 10 percent earlier in the day as fresh worries loom as its board could resign over a bonus dispute with the government.
“Those two stories have people concerned about the UK,” said Geoff Kendrick, currency strategist at UBS in London. Next up on the radar will be the Bank of England’s policy meeting on thursday in which they are widely expected to maintain it unmoved at 0.5%.
By Ho Canjie(CJ), Corporate FX Dealer
]]>The US dollar has taken a bit of a breather today after making gains against most major currencies over the past couple of days. Yesterday’s big story was the downgrade of Greece’s debt by rating agency Fitch from A- to BBB+, citing the country’s banking system as the riskiest in Western Europe and dashing hopes that the European Central Bank would raise interest rates in the near future. Moody’s was also in the news, calling into question the AAA ratings of the US and UK, while downgrades of Dubai’s government-sponsored issuers served to keep investors on the defensive. The euro was punished as a result, continuing its recent slide by falling 3% in the past three sessions versus the USD. Soft German industrial production also added to the woes of the euro as it becomes increasingly clear going into year end that all is in fact not well in Europe. Meanwhile, the sterling was off nearly 1.5% on weak manufacturing data and continuing uncertainty due to the large exposure of UK banks to Dubai. All this negative data transferred over to North American equity markets with the Dow trading off more than 1% on the day in yet another bout of risk aversion (sorry to sound like a broken record). The Big Dollar behaved as we expected and made gains against most majors save the yen as investors dumped risky assets for a short-term reprieve in USD and JPY denominated assets. The Big Dollar is trading slightly softer against the majors this morning while stocks in Europe are modestly lower and the Dow looks set to open in negative territory as well.
After selling off sharply following last Friday’s better-than-expected Non-Farm Payrolls number, the Japanese yen continues to make gains this week and is once again trading in the upper 80s against the USD, much to the chagrin of export-dependent Japan. The Bank of Japan and the Ministry of Finance have been very vocal in their displeasure with the strength of the yen and have made it clear that they will intervene if necessary should the yen continue to get stronger. Eighty-five yen to the dollar seems to be the level that makes them nervous and gets them talking, and seems to be providing good support at the moment. Any move below this level is causing serious pain to Japan, and will most likely result in direct intervention by the Bank of Japan to weaken the yen. The huge debt problems in the US are certainly not helping here, as the overwhelmingly bearish sentiment towards the USD should help to keep the yen at its recent strong levels for the time being.
The Bank of Canada kept rates on hold at 0.25% at their meeting Tuesday, reaffirming their commitment to keeping rates at exceptionally low levels until June of 2010. Carney and company maintained their outlook on the economy for 2010, expecting that growth will pick up in the first quarter of 2010 and that inflation will hit their target of 2% in the second half of 2011. They did, however, point out that the strength of the Canadian dollar has been and continues to be a drag on the domestic economy, as it is serving to offset most, if not all, of the positive developments that have occurred since the summer. The Loonie traded off modestly after the announcement and continued to drift lower throughout the day, seemingly more affected by the USD strength attributed to the selloff in stocks than the Bank’s statement itself. The rhetoric from the BoC does underscore the fact that FX rates are taking on more importance to the bank than they have in the past and that further strength in the Loonie may be met with verbal intervention, as we saw at their last meeting. The CAD is modestly higher today, and with little in the way of data out today, currencies will once again look to stocks for direction. Crude inventories are released at 10:30 am Eastern and could provide some fireworks for the CAD.
By Brendan McGrath, Senior FX Trader
]]>The Kiwi opens today down from yesterday morning after a choppy day’s trading driven by the market’s attempts to rebalance after Friday’s US jobs data.
The Kiwi remained under pressure during yesterday’s local session, with the improved chance of an interest rate rise in the US pulling back demand for the high-yielding currencies. The local focus is well and truly on Thursday’s RBNZ announcement, with all 19 forecasters in the latest Reuters poll picking the rates to stay on hold – with the first raise still expected in Q2 next year. An announcement yesterday from the Treasury department did nothing to help the Kiwi’s position either, with the department’s report stating that NZ’s economic recovery may struggle to maintain momentum. Citing recent sharp declines in imports, the release pointed to further subdued domestic consumption and investment. A slowing of the NZ recovery would reduce the pressure on the RBNZ to raise interest rates, and whilst the market didn’t react strongly to the news at the time, it placed a greater focus on the RBNZ’s decision, and more specifically, the accompanying statement.
The USD continued to bask in jobs data afterglow overnight, with the currency hitting a five-week high against the EUR, and gaining strongly against the JPY. Profit taking held back the gains to a degree (as we always see when the market makes a major jump), as did the natural December unwinding of positions as traders head into the holiday season and year end, but it’s still been a very good 24 hours for the USD. The focus has now shifted to next week’s Fed meeting, and whether this good news will lead to a shift of the Fed’s policy outlook. The likelihood is that the Fed will still downplay their recovery expectations – as evidenced today by Chairman Bernanke cautioning that the US recovery rate remains fragile. Speaking in Washington, Bernanke stated that the US still has “some ways to go before we can be assured that the recovery will be self-sustaining” and that the Fed was still looking to hold rates for an “extended period”.
Whilst we have some important data coming out in the next couple of days, the market will likely still be dominated by the changing fortunes of the US economy, with Thursday’s RBNZ announcement being the next item of major local significance.
• 08 December 09: AU NAB Business Confidence
• 08 December 09: NZ Manufacturing Activity (QIII)
• 09 December 09: AU Trade Balance (Oct)
• 09 December 09: NZ Card Spending (Nov)
• 09 December 09: JP GDP (QIII)
By Chris Hunter, Corporate Dealer
]]>The markets have taken a step back from the traditional driver of good news equals risk appetite. The Greenback continues to gain off the back of Friday’s positive jobs report. Breaking a trend seen for the last 18 months the positive data provided support for the Greenback instead of the purchase of risk. After a lacklustre day for the Aussie key support levels at 0.9050 for the second time in two weeks were tested overnight.
The Greenback finally gave up some gains as comments from Fed Chairman Bernanke extinguished expectations the central bank would raise interest rates anytime soon. Bernanke stated that whilst the economy has improved, the recovery remains shaky at best and the unemployment rate could remain high.
ECB President Trichet also spoke overnight commenting the ECB is focused on price stability and keeping inflation expectations at bay. Another main focus will be to remain vigilant to further write-offs in the banking sector.
US stocks saw modest gains post Bernankes announcement with the Dow Jones and S & P closing up slightly. Gold also clawed back some ground after tumbling in the previous session to settle just over $1,100 and ounce.
Australia’s Central Bank chief Glenn Stevens is set to speak tonight with local Business Confidence figures due today at 11:30am. The aussie looks heavy at best and will likely test new lows if comments and data are not bullish in nature. In a month that is historically very good to the AUD, it continues to defy all the parity talk and indeed looks destined for the .8900’s sooner rather than later.
By Tracey Warren, Corporate FX Dealer
]]>The USD continues to advance against the EUR against the backdrop of strong job data that were released last week and speculations that the Federal Reserve may cut short its stimulus plans. “Bernanke suspects we will grow below normal recovery standards, and that pace could be around awhile,” said Gregory Miller, chief economist at SunTrust Banks Inc. in Atlanta.
“Fed policy may stay where it is, essentially zero, for some time. There are serious risks out there.” USD climbed to the highest level in almost a month versus the euro yesterday after Federal Reserve Chairman Ben S. Bernanke said the U.S. faces “formidable headwinds.”
“The economy confronts some formidable headwinds that seem likely to keep the pace of expansion moderate,” Bernanke, 55, said yesterday in a speech to the Economic Club of Washington. He said inflation remains “subdued” and might even move lower.
“We still have some way to go before we can be assured that the recovery will be self-sustaining,” the Fed Chairman added. “My best guess at this point is that we will continue to see modest economic growth next year — sufficient to bring down the unemployment rate, but at a pace slower than we would like.”
Against USD yesterday, Eur opened at 1.4852, down to a low of 1.4855 and closed at 1.4819.
By Agnes Chong, Account Manager
]]>Equity markets from across the globe sank lower overnight as fresh concerns surrounding Dubai World’s debt led the charge in dampening sentiment. Sliding as much as 6% at one point, Dubai’s DFM General Index was the catalyst in dragging down indices, most notably from emerging markets. While in the midst of its worst losing steak in close to five weeks, the MCSCI Emerging Markets Index added to its woes and gave back an extra -0.6% throughout London trading. Since the later half of November when the government requested a “standstill” on Dubai World’s mammoth debt, Dubai equities have been on a slippery slope south, losing about one quarter of their value in the past few weeks.
While speaking to the Economic Club of Washington yesterday afternoon, Fed Chairman Ben Bernanke’s overly dovish tone all but squashed any realistic hopes of a potential near-term rate increase. By stating that “significant headwinds” remain on the forefront throughout the U.S. economy, rhetoric as such can be deciphered as a strong verbal indicator that rates will remain low for an extended period of time. Though Bernanke’s address was certainly noteworthy, the reaction of the markets as the words were being digested was also an important occurrence. Response to the speech implies that the USD carry trade remains present; in addition, an inverse correlation between equities (risk) and the Greenback is still hanging on by a thread. Last Friday’s exceptionally strong employment data and subsequent dollar rally was the first sign of a decoupling from recent trading themes, a potential indicator that the ever-popular “risk on, risk off” trade has run its course. The next round of data releases over the short-term will be absolutely critical for the fate of the Greenback as better economic figures should no doubt influence the Fed in altering its dovish stance and bring about the prospect of a rate increase.
While the Greenback has picked up modest ground against the majors (excluding JPY), no other currency has taken a nosedive quite like the GBP. Dropping over 200 pips from early this morning, cable is being pummeled from all angles as numerous factors have been dragging on the crown currency. Overnight, Moody’s released a statement that brought the United Kingdom’s (and the U.S.’s as well) AAA credit rating into question. Obviously weighing on sentiment, the Moody’s report said that the U.K. is “resilient” to a ratings downgrade, as opposed to “resistant” like well capitalized nations such as Canada and Germany. According to Moody’s, countries in the “resilient” category have considerably deteriorating public finances and “may therefore test the AAA boundaries”. Coupled with the less-than-peachy Moody’s report, U.K. production data released this morning has not helped the cause of the fledgling currency. October manufacturing came in much weaker than expected at flat for the month, certainly adding to fears that the sector could be on the brink of stalling out. Also on the data plate and below par, the BRC reported that annual growth in retail sales figures dwindled in November, indicating that early Christmas shopping has been on the disappointing end of things. As weak economic data makes the rounds, coupled with an overly dovish outlook from the U.K. central bank, look from the pound sterling to remain an underperformer versus a basket of widely traded currencies.
By Jamie Heighway, Market Analyst
]]>The Kiwi had a mixed weekend - staying steady against most of the majors, but slipping back against a broadly stronger USD.
Friday’s local session was dominated by investor uncertainty ahead of the evening’s non-farm payroll report. With expectations split, the investment community chose to adopt a wait-and-see approach and the resulting lack of participation saw the Kiwi unable to move from its opening levels.
And the data was worth the wait… according to the official US Labor Department release the US economy only shed 11,000 jobs in November. The surprisingly low number shocked the market (the expected result was approx 130,000 jobs lost) and combined with a positive revision of September and October’s figures by 159,000 jobs, gave a suddenly bright picture of the US economy. Normally this sort of news would embolden the investment community towards risk and the Kiwi would benefit, but the overwhelmingly good news actually strengthened the USD. Speculation arose immediately that the Fed may be forced to raise US interest rates sooner than expected, and the USD gained accordingly.
We have another busy week for data this week – none more so than Thursday’s RBNZ interest rate announcement. Whilst they’re likely to keep interest rates on hold and repeat their recent mantra (rates kept low until second half of 2010), the possible hastening of the US’s recovery has thrown an interesting cat amongst the pigeons.
• 08 December 09: AU NAB Business Confidence
• 08 December 09: NZ Manufacturing Activity (QIII)
• 09 December 09: AU Trade Balance (Oct)
• 09 December 09: NZ Card Spending (Nov)
• 09 December 09: JP GDP (QIII)
By Chris Hunter, Corporate Dealer
]]>The Aussie Dollar fell away on Friday night against the USD as US data bettered expectations. Speculation grew that the US Fed may increase interest rates sooner than expected helping the USD rally against a basket of currencies.
This is the first time that positive data in the US supported their currency. It’s a significant corner that has been turned and worth noting. As further data is released that supports an early rise to interest rates in the US we will see the AUD come under increasing pressure.
The initial drop in the AUD came as it was reported that US employers had shed just 11,000 non-farm jobs against expected losses of 130,000. The unemployment rate also dropped from 10.2% to 10.0%. The better than expected data bolstered hopes that the US economy is on a stable road to recovery. This lifted speculation that the US Fed could increase interest rates off record lows of 0-0.25% further supporting the USD. The dollar index, which tracks the USD against a basket of currencies, rose 1.6%, it’s biggest one-day jump since October last year.
With the rallying USD, commodities took a hit with Gold down over $50/oz or close to 5% at $1,159/oz. Oil also briefly dropped below $75 a barrel before settling above the psychological support level. The AUD has continually failed to break beyond 0.9300 USD. Traders are now talking of AUD/USD pushing back towards 0.8500 rather than parity as signs of the US recovery become substantiated. Call your dealer to look at risk management strategies that will protect your budgeted rates over the Christmas period and beyond.
By Alex Molesworth, Corporate FX Dealer
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