NZ$ profit taking on weaker than expected unemployment data; Christchurch primary drag and delays in getting the rebuild underway not helping

By Sam Coxhead*:

Last week proved to be quite settled compared to recent times.

Whilst the markets continue to see periods of volatility, the levels are materially lower than a couple of weeks ago and perhaps shows building confidence in the ECB efforts to bring calm in the Euro-zone.

In the US, with little in the way of top tier economic data, the focus fell on FED Chairman Bernanke speaking opportunities, however he made no reference to monetary policy.

Interestingly the quarterly “unit labour costs” increased 1.7% verse an expectation of a +.5% rise.

This fore shadowed increasing labour market activity and will be a welcome indicator to the FED. Trade balance numbers revealed a wider deficit than expected.

In Australia the RBA’s monetary policy statement was measured, and possibly a more neutral statement than some of the speculative community were looking for. The cash rate remained unchanged.

The result was a pickup in demand for the AUD. Reasonably strong employment numbers on Thursday, also gave impetus to the Australian dollar.

The release of key Chinese data, if anything, was a little more positive than expected. In New Zealand last week disappointing 2nd quarter employment numbers were the focus.

This week is relatively quiet on the data front. A series of US economic releases, especially the retail sales number on Tuesday, will be the focus.

Also garnering attention will be the Euro-zone 2nd quarter preliminary GDP numbers, and UK’s CPI also, on Tuesday.

Major Announcements last week:

·  NZ Unemployment rate 6.8% vs 6.5% expected

·  Australian Cash Rate unchanged at 3.5%

·  Canadian Unemployment rate 7.3% vs 7.2% expected

·  UK Manufacturing -2.9% vs -4.0% expected

·  US Trade Balance -42.9B vs -47.4B expected

·  BOE leaves monetary policy unchanged as expected

·  Australian Unemployment rate 5.2% vs 5.3% expected

·  US Unemployment claims  361k vs 371k expected

NZD/USD 

The NZD dollar lost ground last week, initially due to profit taking and then following the release of poor unemployment data on Thursday. Given there is no tier one level data due for release locally this week, to have any effect on the currency, direction will be once again be driven by externally data releases and events. US data releases, and the ongoing European situation, will therefore dominate.

NZD/AUD (AUD/NZD)

After starting the week holding on to the gains from the previous week, the New Zealand dollar gave up ground against the AUD dollar, throughout the remainder of the week. The RBA’s decision to leave the cash rate at a healthy 3.5% on Tuesday, followed by poor unemployment data from NZ Thursday morning, and then good unemployment data from Australia that same afternoon, saw escalation of the one way traffic.  We expect a quiet week on this pair, with likely tight ranges.

NZD/GBP (GBP/NZD)

The NZD dollar started the week against the GBP, near the highest levels seen since March 2012, but gradually gave up ground for the remainder of the week, due to profit taking and especially following poor NZ unemployment data on Thursday. As things appear calmer in Europe at present, this pair is likely to trade in a controlled range. UK inflation numbers later this week are the next point of interest.

 NZD/CAD

Like a number of other NZD crosses, the NZ dollar versus the CAD trading for last week was one way traffic heading down. After starting near its highs, it drifted south from there. With a lack of important data to set direction this week and the market still digesting both NZ’s poor employment data Thursday and Canada’s on Friday night it’s a case of supply and demand. We don’t expect any fireworks here.

NZD/EURO (EURO/NZD)

The NZD spent the whole of last week bobbing around a rough half cent range against the EURO. It was really a case of which currency was deemed “worse” last week and given where it started on Monday morning and where it finished Saturday, you would have to call it a tie. With relative calmness in the Euro-zone last week and the apparent wait and see approach being by the market at present, it’s hard to see this pair breaking out of recent ranges.

 NZD/YEN

This pairing saw mostly downwards price action within a contained range last week. The NZD dollar drifted lower all week, especially following the poor New Zealand employment data on Thursday morning. With no specific  economic data news to influence the market, we expect quite trading ranges this week.

AUD/USD

The Australian dollar saw choppy range trading last week against the US dollar. Testament to that, is today’s current rates are at exactly the same level as this time last week. The AUD dollar last week after being initially boosted by the RBA confirming that the cash rate would remain at 3.5%, and the unemployment data on Thursday being stronger than market expectations, was knocked on Friday by poor trade data out of China. This caused it to give up those earlier gains. With a lack of local data this week, it will be US Retail Sales numbers on Tuesday followed by the latest inflation numbers Wednesday, and manufacturing and consumer sentiment numbers on Friday that will perhaps help set this week’s direction.

AUD/GBP (GBP/AUD)                            

The Australian dollar finally gave up some of its recent appreciation against the GBP last week. With relative calmness in the EURO zone, the market took the opportunity to take profit on some currency pairings that perhaps looked a little over cooked. We expect a quiet week with narrow ranges, with the focus being the UK’s CPI data out Tuesday.

 AUD/EURO (EURO/AUD)

The Australian dollar set new record highs against the EURO the previous week, so it was no surprise that last week was a little more sedate. As usual it’s a case of EURO underperformance as opposed to any rampant AUD demand. Indications are that recent ECB initiatives are starting to take shape, with positive effect, but the Australian economy also keeps producing good economic data now and then, like last week’s unemployment data. Given the extent of the EURO underperformance of late, there is ample room for further appreciation should the ECB/ESM plans continue to play out in a positive light. This week will see the focus on the Euro area 2nd quarter preliminary GDP numbers on Tuesday.

 AUD/YEN

After spending most of last week stuck in a sideways grind, this pair broke lower on Friday on the back of worrying Chinese trade data and its effects on the Australian economy.  With no specific  economic data news to influence the market this week, we expect quite trading ranges.

AUD/CAD

The Australian dollar saw drifting depreciation against the Canadian dollar last week. With the Canadian employment numbers being worse than expected, the number of building permits issued falling by less than expected and the monthly manufacturing numbers displaying a material bounce from their previous number, it was a bit of a mixed bag, especially weighed up against the good employment data out of Australia. However markets don’t always trade data on face value and this proved to be the case in this instance. This week sees the release of the latest inflations numbers on Friday, so for the bulk of this week the lead will come from the wider market appetite for risk.

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Market commentary:

Last week proved to be quite settled compared to recent times. Whilst the markets continue to see periods of volatility, the levels are materially lower than a couple of weeks ago and perhaps shows building confidence in the ECB efforts to bring calm in the Euro-zone. In the US, with little in the way of top tier economic data, the focus fell on FED Chairman Bernanke speaking opportunities, however he made no reference to monetary policy. Interestingly the quarterly “unit labour costs” increased 1.7% verse an expectation of a +.5% rise. This fore shadowed increasing labour market activity and will be a welcome indicator to the FED. Trade balance numbers revealed a wider deficit than expected. In Australia the RBA’s monetary policy statement was measured, and possibly a more neutral statement than some of the speculative community were looking for. The cash rate remained unchanged. The result was a pickup in demand for the AUD. Reasonably strong employment numbers on Thursday, also gave impetus to the Australian dollar. The release of key Chinese data, if anything, was a little more positive than expected. In New Zealand last week disappointing 2nd quarter employment numbers were the focus. This week is relatively quiet on the data front. A series of US economic releases, especially the retail sales number on Tuesday, will be the focus. Also garnering attention will be the Euro-zone 2nd quarter preliminary GDP numbers, and UK’s CPI also, on Tuesday.

Australia

Economic data out of  Australia was relatively strong last week. The unchanged cash rate and neutral statement gave little insight from a speculative perspective. Employment numbers were better than expected and the unemployment rate remains at a quite impressive 5.2%. The release of the quarterly RBA Monetary Policy Statement on Friday confirmed the thinking that the current risk to economic growth from an international perspective still emanates from Europe. Given the RBA still has rates at 3.5%, they at least have plenty of room to cut rates if need be. On Friday Chinese trade numbers gave an initial dent to the AUD. The overall Chinese trade balance came in at $25.15 bn versus $35.05 bn expected, with exports up just 1.0% y/y (compared with 11.3 percent y/y last month). However overall Chinese growth has settled at a more sustainable level of around 7-8%, and this is still viewed as positive.

New Zealand

Last week the main focus come from the rather disappointing 2nd quarter employment numbers released Thursday. The unemployment rate increased from 6.7% to 6.8%, and came as an unpleasant surprise against the expectation of a fall to 6.5%. Interestingly, the detail reveals that Christchurch was the primary drag on the numbers, with other regions seeing flat employment growth. The Christchurch rebuild is dragging out and the boost to the economy when it finally starts will be very much appreciated. The New Zealand dollar traded heavy before and after the release, and this weakness was seen on a number of different pairings. This week with no key local data due for release, we expect reasonably tight ranges, with an eye on US and European developments for fresh direction.

United States

It was economically a relatively uneventful last week in the US, with little in the way of top tier economic data. Whilst FED Chairman Bernanke spoke a couple of times, it appeared he was deliberately trying not to make reference to monetary policy. The quarterly “unit labour costs” came in above expectations which shows increasing labour market activity which is a positive sign. On the flip side the trade balance numbers revealed a wider deficit than expected primarily due to a drop in exports. This is indicative of the issues that the UK also faces, with Europe being such a closely aligned economy. This week sees a bit more economic news on the calendar. Retail sales numbers on Tuesday start the focus. These are followed by the latest inflation numbers Wednesday, and manufacturing and consumer sentiment numbers Friday.

Europe

Last week there was little in the way of top tier economic data released in Europe. German industrial production numbers were again surprisingly weak for the European powerhouse, illustrating even one of the strongest economies is not immune to the economic slowdown. The important focus continues to be the bond yields of some of the Euro members (their cost of borrowing). The bond markets will continue to see periods of volatility although these levels are markedly lower than a few weeks ago and again shows the building confidence in the ECB efforts to keep the Euro-zone situation under control. This week will see the latest quarterly GDP and inflation numbers released for Europe and this will provide some focus for direction.

United Kingdom

Last week in the UK the focus was on the BOE Inflation Report. The important part from this report was the lowering of economic growth forecasts for 2012 and 2013. With lower growth, the lowering of inflation expectations was of little surprise. This opens the way for further stimulatory monetary policy in the coming year. BOE Governor King has basically discounted any chance of easing the cash rate, a clear signal that further quantitative easing is the most likely answer to ongoing stimulation. As the political pressure builds on the Government to end their period of austerity, it was notable that the report took time to support the government coalitions ongoing austerity drive. The GBP has recovered some of its recently lost ground against a number of its trading partners. This has been supported by the bounce back in demand for the EURO, as Europe’s problems remain the major hindrance restricting the recovery of the UK’s economic growth. This week we see the latest UK inflation, employment and retail sales numbers, as well as the release of the minutes from the last BOE monetary policy meeting.

Japan

The Japanese current account surplus was released on Wednesday last week and was higher than expected. The much anticipated BOJ monetary policy statement saw monetary policy once again left unchanged. This week sees the preliminary GDP numbers released later today, and these along with the minutes from the monetary policy meeting from last week will provide the economic data highlights for this week.

Canada

The Canadian economy saw a mixed number of key economic releases last week. The latest employment numbers were worse than expected, the number of building permits issued fell by less than expected and the monthly manufacturing numbers displayed a material bounce from their previous number. Trade balance numbers revealed a small deficit that was very much in line with expectations. This week sees the release of the latest inflations numbers on Friday, so for the bulk of this week the lead will come from the wider market appetite for risk.

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