Weekly FX Wrap up- 6 Feb 2012 By Sam Coxhead at www.directfx.co.nz
The wave of optimism washing through financial markets in 2012 continued to gather pace last week. The better than
expected run of economic data continued. These good results came from a wide range of economies. Friday’s strong US
employment numbers saw the US dollar stablise. A small bounce in the fortunes of the US dollar may continue to
eventuate, as the near term likelihood of further quantitative easing (QE) from the Federal Reserve (FED) diminishes .
News from Europe remains mixed. The European Central Banks (ECB) efforts to provide longer term funding to banks are
having a significantly positive effect across debt markets, but a resolution on the writing down of Greek debt remains a
work in progress. Global stock markets were generally higher on the week, as the positive sentiment spread.
In New Zealand there was no top tier economic data last week. The NZ dollar remained in demand, in what appears to be
further asset re-allocation from AUD to NZD. This switch from AUD to NZD comes ahead of the Reserve Bank of Australia
(RBA) interest rate announcement tomorrow, and is to be expected as the cash rate differential between the two economies
decreases. The NZ domestic data focus this week will be solely on the labour markets. The quarterly Labour Cost Index
and unemployment numbers are due for release on Tuesday and Thursday respectively.
The Australian dollar remains at what can be considered as extended levels. The more positive global outlook is
providing the driving force behind demand. Tempering further enthusiasm, is the RBA monetary policy decision tomorrow.
The cash rate is expected to be cut 25pts to 4%, with expectations it will be at 3.5% by midyear. Also of note is the
quarterly release of the Monetary Policy Statement from the RBA on Friday. This document provides valuable insight into
how the RBA view both the domestic, and global outlooks.
The positive 4th quarter 2011 US economic data has continued into 2012. Friday’s much stronger than expected employment
numbers will douse much of the enthusiasm for further QE in the short term. Broad based growth momentum is starting to
build with both monaufacturing and non-manufacturing numbers beating expectations. This week is light on economic data
in the US, with just a couple of speeches from FED chairman Bernanke, and consumer sentiment on Friday expected to
provide any domestic US excitement
In Europe the picture remains somewhat mixed. The ECB initiative to provide longer term funding facilities to the
banking sector is certainly easing the way back towards more normal money market operations. Obviously the potential
sticking point to more wide spread relief remains centered on Greece in the short term. The extent of private write
downs on Greek debt remains the point of contention. Until agreement on this is reached, Greece’s place at the Euro-zone
table remains in doubt.
Up until Friday the market had expected 75bio worth of further QE from the Bank of England (BOE) at their monetary
policy meeting on Thursday this week. However the much stronger than expected services sector numbers have seen
expectations pared back somewhat towards 50bio. The more positive signs for the economy are encouraging, but any
outright optimism is unlikely to eventuate fully until a sustained period of positive news is seen. Apart from the BOE
announcement on Thursday, housing numbers Monday, and manufacturing numbers Tuesday, will be closely watched.
In Canada last week the slightly disappointing growth and employment numbers saw the Canadian dollar under renewed
pressure. The US employment numbers stemmed the downward pressure after their release, to support the CAD. The monthly
GDP number came in at 2.4% against an expected -.1%, and employment growth was weak, pushing the unemployment rate up
from 7.5% to 7.6%. This week sees manufacturing numbers released Tuesday, building numbers Wednesday, and the trade
balance on Friday.
Sam Coxhead
Global Currency Payments & Transfers