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Central bank extravaganza sees money policy announcements in New Zealand, Australia, Canada, UK and Europe

Posted in Currencies

By Sam Coxhead*:

Last week saw relatively tame price action in the foreign exchange markets for the most part.

The market has expected a positive result on the Greek funding issue, and has limited expectations for progress from the US fiscal negotiations.

In the coming weeks the markets can expect lower levels of liquidity as the holiday season and end of year approaches.

With the Japanese elections and the on going fiscal talks in the US, these lower levels of liquidity will likely lead to increasing levels of volatility. This week’s central bank extravaganza sees the final monetary policy announcements for the year in New Zealand, Australia, Canada, the United Kingdom and Europe.

The most likely interest rate move is a 25 basis point easing from the Reserve Bank of Australia (RBA) at tomorrow’s announcement.

Major Announcements last week:

·  Greece awarded its next tranche of bailout funds

·  UK revised GDP as expected at 1.0%

·  US Durable Goods 1.5% vs -.6% expected

·  US Consumer Confidence 73.7 vs 73.1 expected

·  ANZ NZ Business Confidence 26.4 vs 17.2 previous

·  AU Private Capital Expenditure 2.8% vs 2.1% expected

·  US Preliminary Q3 GDP 2.7% vs 2.8% expected

·  Canadian GDP Oct 0.0 vs +.1% expected

·  Chinese Manufacturing 50.6 vs 50.8 expected

·  Australian Q3 Retail Sales 0.0 vs +.4% expected

NZD/USD 

This pair saw a somewhat contained range again last week. A mixture of positive and negative news meaning that the opposing moves provided somewhat direction less trade. With the prospect of the RBNZ meeting on Thursday, and the likelihood of an interest rate cut from the RBA, expect topside moves to be limited for the NZ dollar. Last week’s break of resistance at .8250 was brief, and consolidation through this level would be required to open up the way for a clear move higher. A lack of progress on the fiscal talks in the US will favour the US dollar this week, and this trend could accelerate the longer the negotiations are forced to go on. The RBNZ are unlikely to ease the cash rate on Thursday, but the statement will be closely watched. Expect much of the lead to come from the performance of the AUD this week.

  Current level Support Resistance Last wk range
NZD / USD 0.8201 0.8050 0.8250 0.8167 - 0.8267

NZD/AUD (AUD/NZD)

This pair saw another week of relatively tight ranges, with the majority of the lead being driven by moves in the wider market. The domestic focus returns this week, with both central banks in action and a myriad of top tier economic news due for release in Australia. The RBA announce monetary policy tomorrow and RBNZ on Thursday, with the RBA expected to ease the cash rate 25pts to 3.00%. There seems little chance of movement from the RBNZ, although some commentators have continued to talk about further policy accommodation. Australian GDP on Wednesday and employment numbers Thursday provide the wider focus for what will be a very interesting week. It would take some kind of materially surprising outcome to see the pair break from the wider .7800 - .8000 (1.2500 - 1.2820) range.

  Current level Support Resistance Last wk range
NZD / AUD 0.7878 0.7800 0.8000 0.7835 - 0.7894
AUD / NZD 1.2694 1.2500 1.2820 1.2668 - 1.2763

NZD/GBP (GBP/NZD)

This pair has seen some volatility over the last week, albeit remains in a familiar range. This week will provide further insight, with both respective central banks meeting for policy announcements. UK construction, services and manufacturing numbers provide interest ahead of the central bank policy decisions on Thursday. With no changes expected from wither the BOE or RBNZ, the RBNZ statement will be closely watched (BOE do not release a statement on unchanged decisions). Any hint of an easing would see the NZD under some pressure, however the wider range .5000 – .5200 (1.9230 – 2.0000) will likely remain un broken on the week.

  Current level Support Resistance Last wk range
NZD / GBP 0.5112 0.5000 0.5200 0.5100 - 0.5160
GBP / NZD 1.9562 1.9320 2.0000 1.9380 - 1.9608

 NZD/CAD

This pair continues to trade around in its recently familiar and contained range. The NZD starts the week under some pressure and with some weak Australasian data and the prospect of an easing from the RBA leaning on the NZ dollar. For those looking to move funds from Canadian dollars in to NZD, this renewed weakness will be welcomed. The initial support comes in at .8100 ahead of the further support at the lower end of the wider range (.8050).

  Current level Support Resistance Last wk range
NZD / CAD 0.8137 0.8050 0.8250 0.8120 - 0.8196

NZD/EURO (EURO/NZD)

After seeing fairly balanced demand early last week, the NZD underperformed the EURO into the end of the week. This weakness has continued today, ahead of the Spanish and Italian manufacturing numbers later on today. Expect no change from either the RBNZ or ECB at their monetary policy announcements later in the week, albeit the accompanying statements will be closely watched. If risk aversion persists, a consolidated break of the .6250 (1.6000) level is needed for the pair to continue its move back towards more historically average levels.

  Current level Support Resistance Last wk range
NZD / EUR 0.6290 0.6250 0.6450 0.6291 - 0.6374
EUR / NZD 1.5898 1.5500 1.6130 1.5689 - 1.5896

 NZD/YEN

This pair saw further volatile trading last week. The pair was unable to make a consolidating break of topside resistance at 68.00, and looks to have established a 67.00 – 68.00 range for the time being. Given the noise surrounding the upcoming Japanese election, it would be surprising if last weeks range contains this week’s price action. The RBNZ monetary policy announcement of Thursday provides a focus. It seems unlikely the pair will test the downside unless the NZD is dragged lower by some materially worse than expected AUD economic news.

  Current level Support Resistance Last wk range
NZD / YEN 67.56 66.00 68.00 66.97 - 68.09

AUD/USD

Last week’s price actions was relatively contained for this pair. Positive news was well balanced by persistent concerns about the US fiscal cliff. This week’s flurry of economic data in Australia has started with weak retail sales numbers and this has pushed the AUD down early. Third quarter GDP and employment numbers, couple with the RBA monetary policy decision on Tuesday to provide heightened Australian focus for the remainder of the week. Given the RBA are likely to ease the cash rate to 3.00%, the bias is to the down side from current levels. Recent dips in the price action have seen increased demand emerge, and it will be interesting to see if this transpires. On going niggle provided by US fiscal negotiations should support the US dollar in December, or at least until a result is found.

  Current level Support Resistance Last wk range
AUD / USD 1.0409 1.0320 1.0520 1.0388 - 1.0491

AUD/GBP (GBP/AUD)                            

The Australian dollar saw increasing pressure from the Pound Sterling as last week progressed. Capital expenditure numbers provided the initial move lower in demand for theAUD, and today’s weak retail sales numbers have further undermined demand. With busy economic calendars in both economies, there is room for volatility on the week. The bias for AUD  under performance should remain in place for the time being, as the RBA are poised to ease the cash rate to 3.00%. Initial support just below the current levels at .6480 (resistance 1.5430), provides the first target ahead of the sturdy .6420 (1.5575) level.

  Current level Support Resistance Last wk range
AUD / GBP 0.6490 0.6420 0.6620 0.6482 - 0.6545
GBP / AUD 1.5409 1.5100 1.5575 1.5279 - 1.5427

AUD/EURO (EURO/AUD)

The EURO pushed the AUD down through crucial support levels following the capital expenditure numbers last week. This AUD fall in demand has continued today following the weaker than expected Australian retail sales numbers. With the RBA to announce monetary policy tomorrow and the ECB on Thursday, the focus will remain high all week. Add to this the slurry of economic data in both economies, and we can expect some volatile price action at times. The RBA are expected to ease the cash rate to 3.00%, and the ECB are likely to wait until next year for further policy accommodation. Australian 3rd quarter GDP and employment numbers on Wednesday and Thursday respectively, will provide secondary but still elevated focus. With current AUD levels at the lowest in over six weeks, over time these may well prove to have offered reasonable value buying of EURO.

  Current level Support Resistance Last wk range
AUD / EUR 0.7985 0.7950 0.8150 0.7984 - 0.8104
EUR / AUD 1.2523 1.2270 1.2580 1.2340 - 1.2525

AUD/YEN

This pair saw a period of consolidation at these new elevated levels last week. The AUD upside momentum certainly waned as the pair approached resistance at 86.50. The Australian capital expenditure numbers dented AUD demand and this has continued with today’s weak retail sales number. Direction from the current levels remains unclear. The RBA decision tomorrow, 3rd quarter GDP numbers Wednesday and employment numbers Thursday, provide ample fuel for some increased volatility. Add to this the pending snap election and political posturing in Japan, and the outlook if far from clear. But with the RBA poised to ease the cash rate tomorrow, it is hard to see material AUD appreciation on the week.

  Current level Support Resistance Last wk range
AUD / YEN 85.77 84.50 86.50 85.21 - 86.43

AUD/CAD

The AUD finally started to give up some ground to the CAD last week. This came after the soft capital expenditure numbers and the theme had continued into this week with the lower than expected Australian retail sales number today. Tomorrow sees what should be a 25pt cut in the cash rate to 3.00% from the RBA, come ahead of an expected unchanged BOC decision later on in Canada. Third quarter GDP Wednesday, and employment on Thursday round out a very busy week in Australia. Canadian building and manufacturing numbers follow on Thursday, ahead of employment numbers Friday. With the RBA poised to ease the cash rate, the bias is towards a move lower for this pair. The 1.0250 level will provide a stern test for further AUD weakness. Choppy price action is likely and targeting levels with limit orders may offer opportunities to use the volatility as an advantage.

  Current level Support Resistance Last wk range
AUD / CAD 1.0329 1.0250 1.0450 1.0317 - 1.0411

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Market commentary:

Last week saw relatively tame price action in the foreign exchange markets for the most part. The market has expected a positive result on the Greek funding issue, and has limited expectations for progress from the US fiscal negotiations. In the coming weeks the markets can expect lower levels of liquidity as the holiday season and end of year approaches. With the Japanese elections and the on going fiscal talks in the US, these lower levels of liquidity will likely lead to increasing levels of volatility. This week’s central bank extravaganza sees the final monetary policy announcements for the year in New Zealand, Australia, Canada, the United Kingdom and Europe. The most likely interest rate move is a 25 basis point easing from the Reserve Bank of Australia (RBA) at tomorrow’s announcement.

Australia

Last week was relatively quiet in Australia. Construction numbers were mixed, but the new home sales numbers were better than expected. The much anticipated private capital expenditure numbers were better than expected, albeit down from the 2nd quarter. Of interest were the mining investment numbers which held up reasonably well but point towards a lower than previously expected peak, and furthers debate on the possibility of the easing from the RBA at tomorrow’s monetary policy announcement. Various commentators have pointed that if the RBA waits until the next meeting to cut the official cash rate, the gap between easing’s will have been four months, and the lower risk option would be to put insurance in place now. The market pricing is marginally in favour of a move lower to a cash rate of 3.00%. Following today’s flat 3rd quarter retail sales, we have building approvals, GDP and employment all to come this week. There is potential for volatility and this should be kept in mind for those considering transfers involving Australian dollars.

New Zealand

There has been very little in the way of local economic news in New Zealand throughout the course of the last week. Thursday’s ANZ Business Confidence survey revealed an impressive increase to 26.4 from the previous 17.2 level. This second tier data is the last to come ahead of the RBNZ monetary policy decision this Thursday. It seems very unlikely that we will see a cut to the 2.50% cash rate at this meeting. The 3rd quarter data has been weak, but consideration of more up to date indicators point towards the 3rd quarter being a tough one for activity. The 4th quarter certainly looks and anecdotally feels like a different proposition. This will likely see the RBNZ take further time to digest the current data, and leave any prospect of easing to the cash rate for the early months of 2013, if required at all.

United States

Volatility in the wider market is likely to increase in the coming weeks. This increased volatility will be a function of the uncertainty around the US fiscal negotiations and lower levels of liquidity over the Christmas holiday/end of quarter period. Last week saw some reasonably positive data with durable goods orders and consumer sentiment data demonstrably beating expectations. The new home sales numbers disappointed on Wednesday, but was somewhat discounted by the price action. The second read of preliminary Q3 GDP numbers overnight revealed a 2.7% rise in activity against an expectation of a 2.8%. Friday’s lower than expected personal spending numbers point towards softer than forecast GDP growth. This saw a mixed reaction, as the positive sentiment could not be maintained. The fiscal negotiations remain the underlying focus as they will be of direct impact to the level of economic growth in 2013. As the end of the year approaches the FED are likely to get increasingly uncomfortable with any lack of progress, which anecdotally sees lower business investment levels ahead of a positive outcome. FED speeches now commonly point towards the current low interest rate environment remaining in place until the unemployment rate hits a target of 6.5%. Further stimulation cannot be discounted, especially if 2013 growth is adversely affected by the inability of the President and the Republican congress to find a compromise on fiscal issues.

Europe

European finance ministers finally agreed to award the next tranche of bailout funds to Greece last week. An easing of conditions to be met will also apply to those loans to Ireland and Portugal. Lower than expected German inflationary pressure has again increased the calls for an easing from the ECB at Thursday’s monetary policy announcement. This does seem unlikely , with further policy accommodation likely to come in early 2013. European unemployment was as expected at a large 11.7%. Spanish unemployment5 on Tuesday will be of note, with the focus undoubtedly shifting back to Spain in the short term.

United Kingdom

Revised UK GDP numbers were as expected at 1.0% for the 3rd quarter last week. Comments from Bank of England officials continue to talk of a protracted recovery, and the possibility of further quantitative easing in obvious attempts to cap any EURO inspired GBP appreciation. Of note this week was also the news that highly regarded current Bank of Canada Governor Mark Carney will take over the reins at the Bank of England (BOE) mid-way through 2013. Next week sees a busy calendar in the UK. Manufacturing, construction, services and trade balance numbers will come alongside the latest BOE monetary policy decision on Thursday. No change is expected to monetary policy at this meeting.

Japan

The frenzy of anticipation surrounding the Japanese war on deflation has increased again this past week. LDP party leader Abe openly calling for unlimited stimulation until inflation reaches 2.0%. In a Reuters article over the weekend, speculation again increased, with talk of a one off monetary injection of one trillion US dollars in an effort to weaken further the YEN. A number of different ideas are being discussed including the purchase of foreign bonds. Central to the upcoming election will be a increasingly shaky independence of the Bank of Japan (BOJ), with politicians quick to blame an apparent lack of BOJ pro activity for the current lack of economic growth and correspondingly high YEN.

Canada

Last week proved to be a mixed bag for the Canadian economy. Deputy Bank of Canada (BOC) Governor Murray commented that the economy was running close to potential and this would point toward an increased cash rate at some stage in 2013. Unfortunately the monthly GDP numbers show just .6% annualised growth for the 3rd quarter and this comes in materially lower than the expected .9% number. This week sees the BOC monetary policy statement on Tuesday, building permits and manufacturing numbers Thursday, and the latest employment numbers Friday. Expect no change from the BOC to monetary policy, but the accompanying statement will be of interest.

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Sam Coxhead is a currency analyst with DirectFX You can contact him here >>

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