NZ$ posts further gains against Yen as election result pushes Kiwi to heights not seen since September 2008

By Sam Coxhead*:

Global sentiment has endured the final month of 2012 with surprising robustness.

Little in the way of spectacular growth is expected in 2013, but less uncertainty in the early months should promote stability.

An expectation that a fiscal agreement in the US will be reached at some stage. With Greece bedded down for the time being having been paid its 43 billion EURO tranche of aid funds, European sentiment has also improved.

The Bank of Japan are likely to increase economic stimulation at this week’s monetary policy meeting or next, and this further adds towards support for the global economy.

2012 has been a year of sideways movement for the most part, with the NZ and Australian dollars seeing relatively contained ranges.

Conditions point towards this trend continuing in 2013, with global growth’s slow grind back toward more historically average levels. Expect this to come with the usual splattering of increased fear and uncertainty.

Major Announcements last week:

·  German Economic Sentiment 6.9 vs -11.4 expected

·  UK Unemployment 7.7% vs 7.8% expected

·  FED extend QE policy, targets 2.5% inflation and 6.5% unemployment

·  US Retail Sales +.3% vs +.5% expected

·  US Inflation .1% vs .2% expected

·  LDP wins lead coalition in Japanese elections

NZD/USD 

Once the pair broke through resistance at .8350 early last week, the way was eased for sharp appreciation higher towards resistance at .8480. However the momentum has now waned, and there has been a period of consolidation through the last few sessions. The fiscal concerns in the US have all but passed now as negotiations have seemed easier in the last few days. The 3rd quarter GDP number in NZ on Thursday also may provide a reminder of the softness of the economy through that period. Expect further gains from current levels to prove far harder fought than previous ground. US bond yields ( bond interest rates) are also moving higher in the last few days and this should garner support for the US dollar over time.

NZD/AUD (AUD/NZD)

The NZ dollar has continued to see demand over the last week and this has seen the pair push to the upper end of the NZD range. In the absence of any material economic news, the demand has simply been flow driven and was accentuated by lower levels of liquidity as we approach the end of the year. The RBA monetary policy meeting minutes have seen a little pressure placed on the NZD, as AUD demand perked up a little. Now the focus turns to the NZ current account tomorrow and 3rd quarter GDP numbers on Thursday. Current levels and above constitute great value buying of AUD.

NZD/GBP (GBP/NZD)

The NZ continued to push higher against the GBP last week. It reached the highs at the end of the week and has come back under a little pressure to start this week. Current levels certainly look to offer good value buying of GBP with NZ dollars. The focus from here is mixed between NZ and the UK. UK inflation numbers tonight come ahead of BOE monetary policy meeting minutes tomorrow, retail sales Thursday, and current account Friday. In New Zealand we have current account tomorrow and the belated 3rd quarter GDP numbers on Thursday.

 NZD/CAD

The NZD broke through resistance at .8250 early last week. This opened up the way for some impressive appreciation toward the next resistance at .8350. This week has seen the NZ dollar start to give up some of its gains. The NZ 3rd quarter GDP on Thursday provides the final data focus for the week. In Canada on Thursday we get retail sales ahead of the latest inflation and growth numbers on Friday. After such a good run from the NZ dollar, even current levels look to offer good value buying of Canadian dollars with NZD.

NZD/EURO (EURO/NZD)

The NZ dollar managed to break through resistance at .6450 (support 1.5500) last week. However, consolidation at higher levels proved a step too far as sentiment in Europe picks up following the payment of the 43 billion of aid to Greece. Peripheral member funding costs have also moved lower, indicating increasing support for the single currency. Apart from the German business sentiment number later today, the focus comes from the long awaited 3rd quarter NZ GDP number on Thursday. After the recent NZD strength, it looks like the EUR may see increasing demand into the end of the year, and current levels still offer reasonably good value buying of EURO with NZ dollars.

 NZD/YEN

The NZD posted further impressive gains against the beleaguered Japanese YEN last week. The weekend polling result saw the pair open even higher again and set highs not seen since September 2008. Since then we have seen profit taking, and this has pushed the pair back from the highs. The focus for the remainder of the week in NZ is the current account data tomorrow, and the GDP numbers on Thursday. In Japan, there will be intense focus on the BOJ monetary policy decision on Thursday. A move towards more aggressive easing programs would likely see some immediate weakness from the YEN. In the meantime, it seems like we will see the pair consolidate at the recently elevated levels.

AUD/USD

This pair broke the resistance at 1.0520 early last week, and this opened up the way for further appreciation to the August highs at 1.0580. That level has capped the pair at this stage and this week has seen a little US dollar demand emerge to stem further AUD appreciation. The US fiscal situation looks to be coming to a conclusion and this may lead to further US dollar demand. The RBA monetary policy meeting minutes were of limited impact today and now the focus turns to the raft of US data due for release on Thursday. The improved US data of late has seen the US bond yields move higher and this should be USD supportive in the short term at least. Current levels look to offer good value buying of US dollars.

AUD/GBP (GBP/AUD)                            

This pair continues to trade within a relatively tight range with the .6550 (1.5270) level providing a cap for AUD appreciation in the short term. Today’s RBA monetary policy meeting minutes were unsurprising and of limited impact. The focus now moves to the latest inflation numbers in the UK tonight. These come ahead of the BOE monetary meeting minutes tomorrow and retail sales numbers on Thursday. To my mind the inflation numbers are on primary importance, with a lower number opening up the way for further policy support from the BOE. A higher number will restrict BOE actions and ironically, be GBP supportive.

AUD/EURO (EURO/AUD)

The AUD came under pressure from the EURO last week as the pair reversed the moves from the previous week. The .7950 (1.2580) remains the initial target for further EUR appreciation in the short term. It seems like the wider market will provide the lead this week as the RBA minutes were of limited impact to the price action, and tonight’s German business sentiment numbers round out the economic data focus in Europe for the remainder of the year. Current levels are very close to where the pair started 2012. Even given the AUD highs of 2012, current level still offer good value buying if EURO with AUD from a historical perspective.

AUD/YEN

The weakening YEN dragged the pair higher last week. Following the confirmation of the LDP party win in the weekends elections the pair opened at levels not seen since March. With the limited impact of the RBA monetary policy meeting minutes today, the focus now shifts to the BOJ on Thursday. Whatever the decision, nothing is going to demonstrably strengthen the YEN at this stage, or any time soon. With apparent central bank and Government support for ultra-easy monetary policy, weakening the YEN is the primary objective in order to strengthen the pressured manufacturing export sector.

AUD/CAD

This pair remains very much in what has recently become a familiar range. The AUD saw some sharp appreciation in the offshore session on Friday last week and again the appreciation was foiled at the 1.0420 level. The start of this week has just seen a grinding appreciation from the CAD, and certainly nothing to garner too much confidence. With today’s RBA monetary policy minutes of limited impact, the focus now turns to the data in Canada to finish the week. Thursday sees the release of the latest retail sales numbers, ahead of the inflation and GDP data on Friday.

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Market commentary:

Global sentiment has endured the final month of 2012 with surprising robustness. Little in the way of spectacular growth is expected in 2013, but less uncertainty in the early months should promote stability. An expectation that a fiscal agreement in the US will be reached at some stage. With Greece bedded down for the time being having been paid its 43 billion EURO tranche of aid funds, European sentiment has also improved. The Bank of Japan are likely to increase economic stimulation at this week’s monetary policy meeting or next, and this further adds towards support for the global economy. 2012 has been a year of sideways movement for the most part, with the NZ and Australian dollars seeing relatively contained ranges. Conditions point towards this trend continuing in 2013, with global growth’s slow grind back toward more historically average levels. Expect this to come with the usual splattering of increased fear and uncertainty.

Australia

There was little domestic focus for the Australian economy last week. Second tier data revealed lower than expected home loans activity, weaker business confidence and somewhat tepid consumer sentiment. The FED’s announcement of their new QE program boosted demand for commodities and the AUD saw demand with that. This week sees the final focus for 2012 come in the form of the RBA minutes from the last monetary policy meeting two weeks ago. These were unsurprising, and point towards a lower peak in mining investment, and a further softening in the non-mining economy that justified further support for demand. The market is pricing a further easing to the cash rate of 2.75% at the next RBA meeting on February 5th.

New Zealand

The strong demand for NZ dollars continued throughout the course of last week. The FED’s decision on monetary policy sealed the fate of the NZ, in a move that drove the commodity markets higher across the board. The was little in the way of domestic economic data, but this changes this week. Finally the market gets to digest the growth numbers for the 3rd quarter on Thursday. The market expectation is for a .5% number. The NZ Treasury half yearly fiscal update now forecasts 2013 growth at 2.3% and 2.9% for 2014, as the Christchurch rebuild continues to increase in pace. These numbers also see the Government remain on track to return to surplus in 2014/15.

United States

There was plenty of noise to digest in the US economy last week. The FED confirmed their intent to maintain the stimulatory economic conditions, but have given actual data guidance to when it may be eased back as the economy gains momentum. With inflation numbers revealing a tepid 1.8%, it will be sometime before the 2.5% target rate is threatening to drive interest rates higher. The FED also gave a target unemployment rate of 6.5% before monetary conditions would be tightened (leading to higher interest rates for man in the street). There was positive data in the form of manufacturing, and industrial production numbers. These indicate a business sector that has not pulled back investment as much as expected. But the fiscal negotiations remain painful to watch. Hopefully this week will see an agreement forged and this would further add to what should be considered relatively robust sentiment. This week sees further housing data, manufacturing and durable goods orders number up for release.

Europe

The latest tranche of 43 billion EURO’s of bailout funds has been sent to Greece. This coupled with the Spanish banking bailout will contain uncertainty for the coming months at least. Hopefully Greece can further efforts in 2013 to get its house in order and work towards returning to growth. Last week has saw German economic sentiment jump, but lower than expected manufacturing numbers. European inflation numbers remain at levels that require caution, with year on year inflation at 2.60%. Tomorrow’s business sentiment numbers round out the focus for the year.

United Kingdom

Last week saw better than expected employment and industrial orders numbers in the UK. There was also various statements made by Bank of England (BOE) officials with regards to trying to further support growth through extended quantitative easing (QE). With the economy struggling for growth credit rating agency S&P also revised the UK credit rating outlook from stable to negative and this undermined demand for the Pound Sterling at times. Later on today the latest UK inflation numbers will be released. These are important as they could affect the additional QE program at the BOE. Tomorrow sees the latest minutes from the BOE monetary policy meeting. Thursday sees retail sales released in what is the last number of note for the year.

Japan

The LDP party confirmed polling expectations with a relatively easy win in Sunday’s election. With coalition partners, new Prime Minister Abe will be able to put in place his economic stimulatory plans. His effectiveness in his previous time as PM was underwhelming, but certainly a fair more extreme attitude towards stimulating growth is evident now (read into this on going weakening of the YEN). It is unclear whether or not the BOJ will aggressive provide further stimulation at this week’s meeting or wait until early 2013. Certainly the election saw intense pressure mounting on the BOJ to be more aggressive. The YEN remains weaker across the board, and has been consolidating at these lower levels since the start of the week.

Canada

It was a very quiet weak for news in Canada last week. The trade deficit was lower than expected, and the manufacturing sector saw a slump in activity in November. This week sees the last of the notable data released. Retail sales numbers on Thursday are joined by the last monthly inflation and GDP numbers on Friday.

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