Significant offshore demand for NZ$ following benign RBNZ announcement and subsequent statement

Significant offshore demand for NZ$ following benign RBNZ announcement and subsequent statement

By Sam Coxhead*:

The last week proved to be yet another interesting one for market observers.

The increased positive sentiment in January saw equities push through to five and a half year highs towards the end of the week.

Longer term global interest rates moved accordingly higher, and the likes of the US 10 year rate significantly pushed back up through the 2.00% level.

However, it was not to last and yesterday saw a significant pull back in demand for growth assets (both NZD and AUD are growth assets), as investors scrambled to lock in recent gains.

This kind of correction is unsurprising given the significant moves seen in January.

Whilst it remains undeniable that there has been a paradigm shift away from the European doomsday scenario, the focus should now shift to economic growth prospects.

Overtime this refocusing should tame the markets current enthusiasm.

Growth rates are likely to remain at subdued levels in almost all economies for some time yet.

Add to this the prospect of the central bank stimulus being wound back as economic indicators slowly recover, and investors should be increasingly weary in the coming quarters if growth assets continue to rise in the short term.

Major Announcements last week:

·  US Durable Good Sales +1.3% vs +.8% expected

·  US Home Sales -4.3% vs +.5% expected

·  US Prelim. GDP -.1% vs +1.1% expected

·  FED leaves monetary policy unchanged

·  RBNZ leaves monetary policy unchanged

·  Canadian GDP +.3% vs +.2% expected

·  Chinese Manufacturing PMI 50.4 vs 51.1 expected

·  UK Manufacturing PMI 50.8 vs 51.0 expected

·  US Unemployment rate 7.9% vs 7.8% expected

·  US Manufacturing PMI 53.1 vs 50.8 expected

NZD/USD 

Last week’s price action for this pair was curious to say the least. The NZ dollar saw some decent pressure in the approach to the RBNZ monetary policy announcement. To my mind the statement accompanying the expected unchanged decision was unsurprising and benign. However, the subsequent reaction, especially in offshore markets was anything but benign. The demand for the NZ dollar was significant, and was only slowed somewhat at the resistance between .8450 and .8500. So again the pair is at levels that offer good value buying of USD with NZ dollars. Of note has been the move high in US longer term interest rates. Overtime this should translate to increased demand for US dollars.

  Current level Support Resistance Last wk range
NZD / USD 0.8420 0.8300 0.8500 0.8303 - 0.8487

NZD/AUD (AUD/NZD)

It has been a curious week for this pair as the NZ dollar has seen increased demand and broken through resistance to move to higher levels against the AUD. The move following the seemingly benign RBNZ statement last week was surprising to say the least. At its peak the NZD moved to .8140 (1.2285) and the .8150 (1.2270) level now constitutes resistance for the pair. As today’s RBA decision approached the market pared back expectations for an easing from around 40% to 15% and this saw the AUD regain some of its lost ground and the pair hovered at the former resistance of .8050 (1.2420) as the decision was released. The unhanged cash rate 3.00% was always likely with the improved global sentiment in the last month. The RBA have unsurprisingly left the door open for a further easing should conditions change in the coming months. The AUD has seen some renewed pressure following the announcement and the following sessions will prove crucial to the near term direction. Current levels will likely prove to have offered great value buying of AUD with NZD dollars over time.

  Current level Support Resistance Last wk range
NZD / AUD 0.8092 0.7950 0.8150 0.7973 - 0.8140
AUD / NZD 1.2357 1.2270 1.2580 1.2285 - 1.2542

NZD/GBP (GBP/NZD)

The last week has seen the NZD continue to travel at elevated levels over the GBP. Following the RBNZ monetary policy announcement, the NZD saw increased demand and this pushed it to its highs against the GBP. However, with the reversal of the positive sentiment in the wider market in yesterday’s offshore session, the NZD has materially fallen from its highs. The current levels still offer very good levels at which to buy GBP with NZ dollars. This week sees a busy calendar in the UK, and the important NZ employment numbers on Thursday that will be of focus.

  Current level Support Resistance Last wk range
NZD / GBP 0.5344 0.5200 0.5400 0.5260 - 0.5409
GBP / NZD 1.8713 1.8520 1.9230 1.8488 - 1.9011

 NZD/CAD

This pair sits at similar levels to this time last week, albeit the pair has traded a fair range in the meantime. The NZD weakened considerably ahead of last week’s RBNZ monetary policy announcement. The subsequent bounce was as impressive as it was surprising, and was only curbed following the better than expected Canadian GDP number on Friday. The current levels continue to offer good value buying of CAD with NZD from a historical perspective as we head into a busy week of news for the pair. In NZ, the 4th quarter employment numbers on Thursday are the primary focus. Whilst in Canada the monthly manufacturing, employment and trade balance numbers provide the focus.

  Current level Support Resistance Last wk range
NZD / CAD 0.8412 0.8250 0.8450 0.8322 - 0.8458

NZD/EURO (EURO/NZD)

This pair has had an interesting last week. The NZD saw initial pressure ahead of the RBNZ monetary policy decision. However the subsequent recovery in demand NZD has curbed the EURO’s recent outperformance. In yesterday’s offshore session the jitters returned in the periphery European markets and this has enabled the NZ dollar to consolidate  off its recent lows. The question remains if there is further to go in this reversal of the recent trend. Thursday looms large for this pair, with the 4th quarter employment numbers in NZ coming ahead of the ECB monetary policy announcement in Europe. Any further NZD appreciation up towards resistance at .6350 (support 1.5750) would offer better buying of EURO’s than the good value the current levels offer.

  Current level Support Resistance Last wk range
NZD / EUR 0.6241 0.6150 0.6350 0.6120 - 0.6254
EUR / NZD 1.6023 1.5750 1.6260 1.5990 - 1.6340

 NZD/YEN

The NZD saw further gains against the widely pressured Japanese YEN last week. The reversal of general market risk appetite in the offshore session yesterday has pushed the NZD down from its peak, but the market feeling remains that the YEN will continue to see supply in the coming months. This week will see the general market risk appetite provide the lead ahead of the 4th quarter NZ employment numbers on Thursday. Of note is the increasing political pressure on Japanese authorities from the international community with regards to their debasing of the YEN. The “currency wars” debate is likely to increase in the coming weeks, especially if the EURO resumes its appreciation that has already seen in excess of 20% appreciation against the YEN since November.

  Current level Support Resistance Last wk range
NZD / YEN 77.73 76.50 78.50 75.55 - 78.53

AUD/USD

This pair remains towards the lower end of its recent range. Last week has seen reasonably volatile price action within a relatively contained range. The AUD has come under pressure following yesterday’s reversal of recent improved global sentiment, and todays brief RBA monetary policy statement. Whilst leaving the cash rate unchanged at 3.00% the RBA have left the door open for further easing if the recent bounce in global sentiment cannot be sustained. A busy remainder of the week is ensured with Australian retail sales tomorrow, employment Thursday, and the quarterly RBA Monetary Policy Statement on Friday. It seems likely that we will see a test of support levels in the coming sessions, with 1.0350 the obviously target in the short term.

  Current level Support Resistance Last wk range
AUD / USD 1.0402 1.0370 1.0570 1.0368 - 1.0473

AUD/GBP (GBP/AUD)                            

The AUD saw some renewed pressure from re-emerging demand for GBP throughout the body of last week. However, Friday’s offshore session saw  the majority of the week’s GBP gains reversed as equity markets jumped higher and the chances an easing at today’s RBA monetary policy announcement dwindle. So the pair finds itself back over .6600 (under 1.5150), and back in the territory that represents good value buying of GBP with AUD. Today’s RBA decision and statement held little in the way of surprise, with the door remaining open for a further easing if required. At the very least this may undermine some demand for the AUD, which is probably the intended consequence at any rate. The remainder of the week holds further attention on economic data in both economies. In Australia we have retail sales numbers tomorrow, employment Thursday and the quarterly RBA Monetary Policy Statement on Friday. In the UK the services and manufacturing come ahead of what should be an unchanged BOE monetary policy decision on Thursday.

  Current level Support Resistance Last wk range
AUD / GBP 0.6604 0.6480 0.6680 0.6586 - 0.6678
GBP / AUD 1.5142 1.4970 1.5430 1.5022 - 1.5300

AUD/EURO (EURO/AUD)

It has been an interesting week for this pairing. The AUD has seen period of intense pressure from the EURO, but the AUD has bounced from the lows as the markets reversed some of their recent positive sentiment in the last couple of sessions. Today’s RBA statement has left the door open for further easing’s and this has seen the pressure come back on the AUD following its release. The remainder of the week sees the focus on the Australian economy continue. Tomorrow sees retail sales numbers released, Thursday the employment figures and finally on Friday the quarterly Monetary Policy Statement from the RBA. In Europe the focus will remain intense. The peripheral member debt markets will be closely watched, but real focus will be on the ECB monetary policy statement on Thursday. Given the recent strength of the EURO, it will be interesting to see how they react to that, given it will hamper recovery efforts.

  Current level Support Resistance Last wk range
AUD / EUR 0.7712 0.7680 0.7880 0.7590 - 7782
EUR / AUD 1.2967 1.2820 1.3160 1.2850 - 1.3175

AUD/YEN

The YEN remains under pressure across the board, and against the AUD is no exception for the most part. The last 24hours has seen the AUD give up some of the gains as the global risk appetite gave up some of its recent gains. Today’s RBA monetary policy announcement has seen the AUD under further pressure as the RBA continues to leave the door open to further easing to the cash rate. This week sees the focus almost entirely on the Australian side of the equation, with retail sales, employment and the quarterly RBA Monetary Policy Statement to come. It seems likely the YEN will remain weak in the coming months at least, but corrections seem likely from time to time and provide opportunities for those looking to buy AUD with YEN.

  Current level Support Resistance Last wk range
AUD / YEN 96.04 95.00 97.00 94.37 - 97.04

AUD/CAD


The Canadian dollar is finally starting to take back of its lost ground from the AUD. The support level at 1.0350 has held for the time being, but it remains the target for CAD out performance in the short term. The AUD has seen some increased pressure following today’s RBA statement. Combined with Wednesday’s retail sales numbers, Thursday’s employment numbers, and Friday’s RBA quarterly Monetary Policy Statement, it is a big week in Australia. In Canada the focus starts later on it the week with manufacturing, building, employment and trade balance numbers.

  Current level Support Resistance Last wk range
AUD / CAD 1.0394 1.0350 1.0550 1.0352 - 1.0515

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Market commentary:

The last week proved to be yet another interesting one for market observers. The increased positive sentiment in January saw equities push through to five and a half year highs towards the end of the week. Longer term global interest rates moved accordingly higher, and the likes of the US 10 year rate significantly pushed back up through the 2.00% level. However, it was not to last and yesterday saw a significant pull back in demand for growth assets (both NZD and AUD are growth assets), as investors scrambled to lock in recent gains. This kind of correction is unsurprising given the significant moves seen in January. Whilst it remains undeniable that there has been a paradigm shift away from the European doomsday scenario, the focus should now shift to economic growth prospects. Overtime this refocusing should tame the markets current enthusiasm. Growth rates are likely to remain at subdued levels in almost all economies for some time yet. Add to this the prospect of the central bank stimulus being wound back as economic indicators slowly recover, and investors should be increasingly weary in the coming quarters if growth assets continue to rise in the short term.

Australia

There was little in the way of top tier economic data in Australia last week, but of note was the bounce in the level of the NAB business confidence survey. The RBA just released their expected unchanged monetary policy decision with the cash rate stable at 3.00%. Their outlooks is more upbeat with the improved global sentiment, but soberly they remain poised to react if conditions again worsen in the coming months. Leaving the door open to further easing to the cash rate works at a number of levels, the least of which is the intended consequence of undermining demand for the stubbornly high level of the AUD. The remainder of the week sees the latest retail sales numbers released tomorrow, employment numbers Thursday and the quarterly Monetary Policy Statement on Friday from the RBA.

New Zealand

Last week saw the latest monetary policy decision from the Reserve Bank of NZ (RBNZ) provide the primary focus for the NZ economy. No change to the emergency low 2.50% cash rate was expected by any domestic economists. The unchanged decision was accompanied by a seemingly benign, and balanced statement. Acknowledgement of softer than expected economic news in 2012, was balanced by growing momentum being driven by the increasing activity in the Christchurch rebuild. The continued high level of the NZD is causing pressure in the export and import substitute sectors, and supply constraints are causing increasing prices in certain housing markets. The RBNZ are starting to look at the possible use of ”macro-prudential” tools to curb demand until supply increases, but these would appear to be some way off from being implemented. Whilst there was little of surprise in the statement, the market’s reaction has been somewhat surprising. After being under pressure heading into the announcement, the NZD has seen periods of very strong demand in the sessions since. Demand against the Australian dollar looks to have been the primary mover, as investors repositioned ahead of the RBA monetary policy decision today. Before the decision the market had priced just a 17% chance of the cut, down from around 35% last week. Thursday sees the release of the 4th quarter employment numbers, with the market expectation of a fall in the unemployment rate to 7.1% (from 7.3%).

United States

Throughout the course of the last week the economic data in the US has been somewhat mixed. Consumer confidence, GDP and factory orders were all lower than expected, whilst durable goods sales, and manufacturing numbers were strong. Employment numbers were close to expectation. The positive numbers on Friday saw reaction across the markets. Equities pushed on higher to five and a half year highs and the interest rate markets backed up to see the 10 year yields push over 2.00%. These were very positive signs, but did have the look of overly exuberant price action and yesterday saw a reality check. Europe led sentiment lower and profit taking emerged which reversed a large portion of Friday’s surprising gains. The FED kept monetary policy stable as expected, with monthly quantitative easing at 85 billion likely to be maintained until the unemployment rate drops to around 7% from its current 7.9% level. This week sees a relatively quiet economic calendar with services numbers and the trade balance expected to dominate the focus.

Europe

Last week’s economic data in Europe produced mixed results. Data in Germany has been weak of late, and the retail sales and consumer sentiment numbers were no exception. However, these were balanced by some encouraging signs in the employment markets with 16,000 less unemployed on the month. Overall, the European unemployment rate fell from 11.9% to 11.7%, whilst inflation was 2.0% vs 2.2% expected. Sentiment in the European equity and debt markets was buoyant throughout the week. However, yesterday saw a correction and periphery debt markets pushed funding costs higher and equities were pushed lower. The EURO has had a huge lift in demand to start 2013 and there was always likely to be a pull back at some stage, and we may see a further fall in demand this week. A materially higher EURO obviously curbs economic recovery as exporters become less competitive, and it will be interesting to hear the ECB’s comments on this at their monetary policy announcement on Thursday.

United Kingdom

It was a quiet week for news in the UK, and the pressure remained on the GBP, as capital repatriation from the UK back to continental Europe continues. Interestingly, the latest consumer credit numbers showed a significant increase which is a positive sign. House prices, manufacturing and construction numbers were uninspiring. This week sees an increased focus on economic data. Services and further manufacturing numbers come ahead of the BOE monetary policy decision on Thursday, albeit no change is expected at this meeting. Certainly the BOE will be quietly pleased with the recent weakness of the GBP, which seems to be a goal for most central banks with recovering economies.

Japan

Last week in Japan saw as expected retail sales numbers at +.4%, and lower than expected activity in industrial production and household spending. This week sees the primary economic data focus on the current account numbers on Friday. The YEN remains under pressure across the board, and apart from the odd bout of profit taking such as was seen overnight, this theme should continue in the near term at least. Japanese authorities have quickly become targets for criticism over the weak YEN as the currency debasement debate again erupts. Expect these tensions to increase overtime, especially if the EURO pushes onto higher levels and Europe growth prospects are further reduced from modest levels. Next week sees preliminary 4th quarter GDP numbers released and the latest monetary policy announcement from the Bank of Japan (BOJ).

Canada

The sole economic data focus in Canada last week was a monthly GDP number. The +.3% result was a little better than expected and along with the increased market sentiment, aided demand for the Canadian dollar. This week sees the release of manufacturing, building permit, employment and trade balance numbers. Also guiding sentiment will be the wider market risk appetite after yesterday’s partial reversal of the recent gains in growth assets. If we see further corrections lower from risk assets, expect to see the Canadian dollar outperform its Australasian counterparts and push back towards more historically average levels.

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

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