Markets influenced by mixed data, issues in Europe, US elections and pending US 'fiscal cliff'

By Sam Coxhead*:

Last week the wider financial markets saw periods of moribund price action, and this saw most markets contained by their recently familiar ranges.

Ongoing influences of mixed global economic data and the state of the debt markets in Europe, have been joined by the significant influences of the US presidential election and pending US 'fiscal cliff".

The remainder of 2012 will likely see the market's focus continue on these significant macro issues, while the economic data becomes of passing interest in the short term.

Major Announcements last week:

·  S&P downgrade Spanish credit from BBB+ to BBB-

·  NZIER Business Opinion +8 vs -4 previous

·  UK Manufacturing Production -1.1% vs -.6% expected

·  Australian Unempl. rate 5.4% vs 5.3% expected, but good full time jobs growth

·  US Weekly Jobless Claims 339k vs 368k expected

·  US Consumer Sentiment 83.1 vs 78.1 expected

·  Chinese Trade Balance 27.7B vs 20.4B expected

·  Chinese Inflation 1.9% as expected

NZD/USD 

This pair saw a very contained range for much of last week. The decent support at .8150 held until risk aversion hit the wider markets earlier today. Consolidation below this level enables the way for investigations lower to .8080 in the short term at least. The upside now seems limited for the NZD, at least ahead of Chinese GDP data on Thursday.

NZD/AUD (AUD/NZD)

It was an interesting week for this pair last week. The Australian employment numbers  saw the AUD take back some of its lost ground against the NZ dollar and push back through the significant .8000 (1.2500) level. This week sees Wednesday as the focus with the NZ inflation number for the 3rd quarter followed by the RBA monetary policy meeting minutes. Expect the minutes to be of more significance as the inflation pressure in NZ is towards the lower end of the RBNZ targeted band. If the RBA minutes show an openess to more than the expected 25pts of easing to the cash rate in the coming months, the AUD should underperform.

NZD/GBP (GBP/NZD)

This pair continues to trade within in its contained and familar .5050 - .5130 range (1.9500 -1.9800). Both currencies saw periods of demand and this has helped contain the trading ranges of late. This week sees the NZ dollar open on the soft side inline with the wider market risk aversion. Both economies see the release of the latest inflation numbers on Tuesday. These come ahead of the Bank of England (BOE) monetary policy meeting minutes on wednesday, and UK retail sales numbers on Thursday. If the risk aversion increases in the wider market, expect pressure to come on the NZD initial support level at .5050 (1.9800).

 NZD/CAD

This pair traded a very contained range for the most part last week in the absence of top tier economic data in either economy. the pair starts this week right on crucial NZ dollar support levels as the NZD sees some weakness inline with the wider market risk aversion. The BOC Business Outlook Survey and NZ infaltion data should dominate the focus early this week, before Canadian infaltion numbers late on Friday. The early risk aversion looks a little ominous and there appears to be little to significantly boost NZD demand in the short term.

NZD/EURO (EURO/NZD)

Last week saw further trade within a recently familiar range. The NZD saw demand to start the week, but the gains could not be consolidated. The EURO saw some periods of solid demand later in the week, as the expectations of a Spanish approach for funding assistance increased. Risk aversion has increased to start this week and this will likely contain demand for the NZ dollar in the short term. Expect the EU summit to dominate the focus, as the NZ inflation data on Tuesday will likely be of limited impact.

 NZD/YEN

This pair saw a relatively contained trading range for much of last week. With the economic data in either economy being of limited impact, the pair was again lead by the wider market's appetite for risk. Expect this to continue this week, as the NZ inflation data should be of limited impact. Expect strong words from the BOJ Governor Shirakawa, but anything short of action will like garner limited response.

AUD/USD

It was an interesting week for this pair last week. Initially the AUD was vulnerable, but after the release of the solid jobs numbers there was some solid demand. There was evidence of the squaring of  "sold AUD" positions that boosted demand. However, after the RBA comments onFriday, and  with the markets increased risk aversion, the AUD starts the week in a vulnerable position. There is a host of US data that will be of influence this week. In Australia the RBA monetary policy meeting minutes will be of focus. Inital support for the pair coms in at 1.0200, before further support at 1.0150 below.

AUD/GBP (GBP/AUD)                            

Last week saw the AUD take back some of its recently lost ground against the Pound Sterling. The boost initially came from some GBP underperformance, but the AUD demand really increased after the solid jobs report was released. The performance was cut down on Friday following the comments from RBA Govenor Stevens, and this weakness has further increased as the risk aversion increased to start this week. Tomorrows RBA monetary policy meeting minutes come ahead of the latest UK iflation numbers. Wednesday sees the RBA monetary policy meeting minutes released ahead of the retail sales numbers on Thursday. .6300 (1.5875) provides the target for further AUD weakness in the short term.

 AUD/EURO (EURO/AUD)

For this pair last week was a game of two halves. The AUD saw some decent demand to start the week as it bounced back from its recent lows. It was aided by the solid Australian employment report, and there was evidence of scrambling to cover "sold AUD" positions by the speculative community. However the strength could not be sustained and the EURO was more steady as risk aversion increased. This was further enhanced by the comments from RBA Governor late Friday. This week sees the RBA   monetary policy meeting minutes on the focus in Australia. In EU the EU summit starting Thursday will be a highlight, while Euro-zone inflation and business sentiment numbers will provide focus ahead of the summit.

AUD/YEN

The Australian dollar managed to bounce off crucial support at 79.50 against the YEN at the start of last week. From there its made staggering progress higher, aided by the better than expected Australian employment numbers. However, risk aversion favours the YEN, and the AUD finds itself under some renewed pressure to start the week. The RBA monetary policy meeting minutes on Tuesday provides the week's focus in Australia. In Japan the focus will come from a couple of speeches being made by BOJ Governor Shirakawa

AUD/CAD

The Australian dollar saw a decent bounce again the Canadian dollar last week. The initial bounce looked to be some profit taking from investors after the recent AUD underperformance, but this increased once the solid Australian jobs growth was released. However, the gains were to be consolidation and Fridays comments from RBA Governor Stevens exposed the AUD's vulnerability that has continued into the open of this week. The BOC Business Outlook Survey late on Monday provides focus ahead of the RBA monetary policy meeting minutes on Tuesday. Canadian inflation numbers round out the week on Friday. Given the significant AUD underperfmance of late, expect further CAD gains to be far harder won, than with the pair above 1.0100.

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Market commentary:

Last week the wider financial markets saw periods of moribund price action, and this saw most markets contained by their recently familiar ranges. Ongoing influences of mixed global economic data and the state of the debt markets in Europe, have been joined by the significant influences of the US presidential election and pending US 'fiscal cliff".The remainder of 2012 will likely see the market's focus continue on these significant macro issues, while the economic data becomes of passing interest in the short term.

Australia

The latest jobs numbers dominated the focus in Australia last week. The significantly strong full time employment component saw increased demand for the Australian dollar in the sessions following the release. The turn around in sentiment proved somewhat temporary as the Reserve Bank of Australian (RBA) Governor Stevens spoke at the annual IMF meeting in Hong Kong. Stevens referred to the current low inflationary pressure opening up the way for further monetary easing as required. The consequence of his comments saw the interest rate market reverse the move it made following the employment numbers, where it had limited expectations for further easing to just one 25 point cut to the cash rate by year end. Opening up the way for a move in the cash rate below 3.00% in the coming months should further undermine the demand for AUD, which is likely the motivation for the Steven's comments. This week will see a focus on the RBA monetary policy meeting minutes when released on Tuesday. Also of influence will be the Chinese growth numbers as they come out on Thursday. Today's Chinese inflation numbers were 1.9% and confirm that Chinese inflationary pressure is well contained, leaving the way open for further stimulation from authroities if deemed appropriate.

New Zealand

It was a relatively quiet week for news in NZ markets last week. The latest business opinion numbers from the New Zealand Institute of Economic Research were slightly higher than for the 2nd quarter and somewhat uninspiring.The manufacturing and services indexes both contained some soft components, and should be watched in the coming months. Tomorrow's 3rd quarter inflation numbers are of note, but these will likely be of limited short term impact given the low level of current inflation.

United States

Last week the economic data in the US was relatively positive. Manufacturing, weekly jobless claims and consumer sentiment numbers all beat market expectations. Increasing focus on the November 6th election and pending "fiscal cliff" provide an interesting back drop for the coming weeks.This week sees a busy calendar for economic data, with retail sales, manufacturing, housing and inflation numbers to keep interest.

Europe

Last week saw better than expected industrial production numbers in Italy and France underpin increased activity in wider Europe. The Spanish credit downgrade by ratings agency S&P was of limited impact as Spain remain poised to request funding assistance at some stage in the coming weeks. Thursday's commencement of the latest EU summit provides the primary focus for the week, but before that we have the important inflation and economic sentiment numbers on Tuesday. It seems likely now that Greece will receive further time to make the required spending cuts, and looks increasingly likely to meet its requirements and maintain its position within the EURO.

United Kingdom

The focus in the UK last week was the latest UK manufacturing data. Disappointingly, this was weaker than expected and came accompanied by a downward revision of the previous number. The latest IMF statement on the UK called for deferment of spending cuts if the growth numbers continue to disappoint. Debate is intensifying on whether or not the Bank of England (BOE) should engage in further stimulatory activities with inflation remaining stubbornly higher than expected. Ingrained inflation expectations are not positive for the economy and this type of theme will no doubt become more prevalent in the comings years. This week sees the latest inflation numbers come on Tuesday, BOE previous monetary policy meeting minutes Wednesday, and retail sales numbers released on Thursday.

Japan

Efforts by Japanese officials to "verbally Intervene" and talk down the value of the YEN continued last week. The Bank of Japan (BOJ) monetary policy meeting minutes also reiterated commitment to curb the strength of the YEN as it undermines the export sector in Japan. This weeks focus comes in the form of two separate speeches from BOJ Governor Shirakawa. Given last weeks militant attitude, more of the same can be expected. Actions will have to follow these warnings at some stage and given the increased verbal activity of late, activity from Ministry of Finance and BOJ officials can not be ruled out in the short term.

Canada

There was little news of note in the Canadian economy last week. Trade numbers came in close to expectations and were of limited impact to the CAD. This week sees the Bank of Canada's (BOC) business outlook survey on Tuesday, and the important inflation numbers on Friday.

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