• Greece’s credit rating downgraded
• US companies reporting poor outlook
• AUD Home Loan and Trade Balance figures due today

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

• AU Business Confidence figures due at 11:30am
• RBA chief Glenn Stevens to speak tonight
• US Fed Chairman Bernanke speaks overnight

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

• US employment data beats expectations
• USD rallies against a basket of currencies
• Gold down from record highs

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

• QE speculation pushes JPY lower
• Gold continues to break new ground
• AU Retail Sales due out 11:30am

The Aussie Dollar traded in a tight range compared to what we have seen recently with a push to 0.9300 against the USD falling short overnight. With no major data released yesterday, the Aussie took direction from the local equity market which finished higher after the strong lead in from Wall St.

Amongst the limited releases last night, the US Fed released their Beige Book. The Beige Book is a report on economic conditions and showed that 8 out of the 12 districts in the book reported a pick up in economic activity. The remaining 4 showed little change to previous reports. The report gives little reason for the Fed to move interest rates from their current record lows when they meet in two weeks.

Concerns over possible quantitative easing from Japan pushed the Yen lower against most currencies last night. The Japan Prime Minister last night stated that the recent rise of the Yen against the USD cannot be left “as it is”. This saw the Yen depreciate against the USD whilst the Aussie also gained against the Yen pushing toward 81.00.

Gold also pushed to new record highs topping out at $1,216/oz as Hedge funds piled into bullion.
Locally, eyes will be on Aussie Retail sales that are released at 11:30am today. A weak figure will put the Aussie under massive pressure, as coupled with the third rate rise in a row from the RBA on Tuesday, these figures may continue to struggle undermining the recovery hopes.

Clients are reminded that the current level of the AUD particularly against the USD are historically very good. Locking in or discussing a hedging strategy with your dealer at these levels for at least a portion of your future exposure is a prudent risk management strategy.

By Alex Molesworth, Corporate FX Dealer

• Dubai concerns start to ease
• RBA rate announcement at 2:30pm today
• AU Building approvals released at 11:30am

The safe haven allure of the Greenback started to wane on Monday as investor fears over Dubai World’s troubles abated slightly. The UAE Central Bank has offered a cash injection to Dubai’s banks to limit any potential economic fallout. The Aussie retracted from multi week lows to open the session back above 0.9100 against the US Dollar, whilst recovering two cents against the Japanese Yen.
Surprising upbeat regional business activity for the US also weighed on the Greenback with the dollar index ending the session down slightly. Gains across equity markets were capped as concerns over disappointing holiday sales weighed. Oil prices gained slightly to settle above $76 a barrel as a broadly weaker US dollar provided support.

Today will see the much anticipated RBA Rate Statement released at 2:30pm. Markets are wagering a 60 percent chance of a move higher. The cash rate will continue to provide support for the Aussie battler even though a move to 3.75% is still at historical lows.

The aussie will remain steady in quiet trade leading up to this afternoon’s announcement where volatility will return. If a hike is made expect the AUDUSD to test resistance levels just below 0.9200 and then at 0.9230. In the absence of any rate hike support levels of 0.9050 will be strongly tested.

By Michelle Dri, Senior Corporate FX Dealer

• Risk aversion wanes
• Equities rally as trading volumes normalise
• RBA rate announcement tomorrow

Risk aversion wanes

After a hugely volatile week across all asset classes, we saw a 450 point trading range in the local unit topping 0.9300 and bottoming out at 0.8940 on Friday evening, markets emerged a little battered but otherwise unscathed. With massive risk aversion brought on by the Dubai government backed conglomerate - Dubai World - seeking a stand still on debt payments as part of a restructure, markets were sent into a free fall as traders “sold risk first and asked questions later”. Further weight was added to the fall, with trading volumes down due to the Thanks Giving holiday. Downside momentum waned late on Friday night as European and US equities trimmed losses in the offshore session.
The potential magnitude of Dubai defaulting on its debt, came as a shock to the global market and a stark reminder that a global recovery is not simply a “one way bet”. Investors were spooked by the possible contagion in the banking vertical. This refers to the transmission of financial shock from one sector to another independent sectors, and explains why financial stocks bore the brunt of an equity sell-off late last week.

Equities rally as trading volumes normalise

This week will no doubt see a continuation of heightened volatility, despite normal trading volumes resuming. Offshore, the ECB meets on Thursday to discuss their monetary policy pre-Christmas. The US will also be busy with pending home sales and the all important non-farm payrolls due on Friday night. After the better than expected jobless claims out last week, investors may be optimistic that unemployment in the worlds largest economy has peaked and is on the way down.

RBA rate announcement tomorrow

Locally, markets have trimmed their expectations on a rate rise by the RBA tomorrow from a near 80% chance a fortnight ago to below 50%. Without a meeting in January, experts believe failure to raise rates tomorrow will be an opportunity lost. We encourage our clients to be vigilant during this volatile trading times. Obviously a 450 point movement will impact the bottom line, and with trading volumes historically low around Christmas and into January, we have many products which will assist in achieving a desired level. Please contact your dealer for more information.

By Michelle Dri, Senior Corporate FX Dealer

• US Housing data beats expectations
• Aussie climbs off lows, back above 0.9200
• Gold hits new record highs; Copper also rallies

The Aussie went on a run last night taking advantage of good housing data out of the US. The Aussie had seen thin trading in the domestic session yesterday with the Japanese on a Bank Holiday. It climbed off weekend lows to be holding above 0.9100 USD throughout the day before heading higher in the afternoon.

Data released in the US overnight saw existing home sales beat expectations and jump to their highest levels in more than two and a half years. The jump in the figures coincided with a rush to take advantage of a tax credit for first home buyers due to end this month. Wall street rallied on the news snapping a three day slide to finish up just over 1%.

The jump in the Aussie was more to do with USD weakness than strength of the local unit. A US Federal Reserve official affirmed expectations that US Interest Rates would remain at record lows for an extended period. The comments resulted in the US Dollar shedding one percent against a basket of 6 major currencies. Commodities benefited from the comments with Gold hitting fresh highs of $1,173.50/oz. Copper was also up hitting 14 month highs.

The overnight news proves one thing, that the currency market is as fickle as ever. The positive housing data saw the return to risk that had been abandoned on Friday due to less than stellar data. Traders are reacting heavily on major data releases causing the bumpy ride, with the Aussie failing to hold above the 0.93-0.94 region for any sustained period since the falls of 16 months ago. Current levels in the Aussie cannot be ignored when hedging for future payments.

By Alex Molesworth, Corporate FX Dealer

• Aussie drops to 0.9060 before bouncing
• Investors sell risk on Friday night
• US existing home sales tonight

The Aussie ended the week on a soft note after the base it had formed at 0.92 failed to hold. The US$ rallied on some classic risk aversion as investors wound back their riskier trades in favour of US bonds. This saw US 3 month interest rates nearly hit zero, which hasn’t been seen since the height of the credit crisis. The flight to safety saw the Aussie break support at 0.91, extending as far as 0.9060 before it found buyers. It starts the week in the mid 0.91’s.

In looking at some of the financial news headlines, a theme is developing with investors positioning themselves ahead of the year end and the inevitable withdrawal of government stimulus. Whilst we have seen continued rhetoric from bureaucrats, pledging to hold stimulus in place for the time being, central banks have begun to gradually shift their stance on monetary policy. This has taken the form of outright interest rate hikes from the Reserve Bank of Australia while in Europe and the US we have seen subtle changes in language.

The Australian Dollar has seen significant support as a result of being the first country to hike rates following the GFC, this may come under threat when the US Fed eventually hints it will begin to move its base rate from essentially 0%. While this may be some months away it is worth remembering the Aussie’s stellar rise this year may not be a one way bet into 2010.

We have US existing home sales tonight and US GDP is released early on Wednesday morning. With no data today the Aussie may well take a breather after its fall on Friday night.

By Matt Spehr, Corporate FX Dealer

A round of risk aversion has swept the globe in the last 24 hours taking the floor out from beneath the NZD.

Overnight news had a negative tone but the data was not horrendous. British retails sales were 0.20% short of expectations at 0.40% and wholesale activity in Canada was released at a 0.20% gain for the month versus expectations of 0.60%. In the States 505k people applied for unemployment benefits for the first time, only 2k more than expected and manufacturing data from the Philadelphia Fed actually came in well ahead of forecasts at 16.7.

So while it wasn’t that bad it also doesn’t offer any reassurance to markets that have put their money on a global recovery and prices for just about everything fell as participants reduced their exposures. The major international global equity markets are all down over 1%, Brent oil has retreated to USD $76.75 a barrel and even gold bugs have paused their buying spree. The NZD has been at of the front of the downward charge, at one point loosing 3% of its value against the USD.

Upcoming Announcements:

• 20 November 09: JP Interest rate announcement
• 20 November 09: NZ Credit card spending
• 23 November 09: US Existing home sales
• 23 November 09: US Chicago Fed Activity Index
• 24 November 09: GE IFO Business climate

By Sam Spink - McCarthy, Corporate Dealer

• Risk appetite falls, stocks, commodities decline
• Yen gains broadly
• Aussie sharpest drop in 3 weeks

The Australian dollar suffered its biggest fall in 3 weeks overnight as investors looked to lock-in profits as year end approaches after a long rally carried the local currency to 15-month highs this week. The Aussie dipped towards $0.9130 overnight, down from $0.9300 seen early Thursday morning. It also lost ground against the yen towards 81.00, from Thursday’s 83.00 level and euro towards $0.6150 from $0.6230.

The dollar and yen rallied overnight in revived safe-haven demand for the US and Japanese currencies with the pullback in risk appetite illustrated by declines in equity and commodity markets. Analysts said investors were turning cautious after recent economic data has not been as rosy as forecast, increasing worries that the sharp rally in risky assets over the past several months may have been overdone.

Investors were also wary of talk from emerging market countries about capital controls to limit some of the hot money flows into their economies, with new steps announced by Brazil and South Korea. With the recent volatility in currency markets serving as a timely reminder for investors and customers of what to expect into the traditionally volatile Christmas and New Year period, the use of Market Orders, Forwards and Currency Options will help protect against downside movements and maximize hedging returns.
Talk to your dealer to discuss the most appropriate hedging strategy over this period.

By Michelle Dri, Senior Corporate FX Dealer