Currency Focus

Mar 6, 2012

Risk currencies came under pressure overnight as Chinese Premier Wen Jiabao announced a cut to China’s growth rate target of 7.5% for 2012 at the annual National People's Congress.  China has set its Growth target of 8% since 2005 yet in the last two years it has decreasingly outperformed it at 10.4% GDP in 2010 and 9.2% last year.  The cut sent the AUD down to 1.0656, continuing the slide from late last week as it was trading up at 1.0815 USD on Friday morning.

Key European indices were lower overnight with a solid Euro-Zone Retail Sales report failing to provide any sustained upside momentum, however the Euro managed to buck the trend peaking at 1.324 USD. The U.S session saw Chinese announcement overwhelm mixed economic news from the U.S with factory orders decreasing for the first time in three both versus ISM non-manufacturing PMI which hit its highest level since April last year.

Obviously with services versus manufacturing paring each other off, the S&P closed -0.37 down on the Chinese growth concerns.   With both sessions marked with risk being taken off the table, the Yen’s solid depreciation run had the brakes put on, with the USDJPY pair slipping down 0.5 Yen and AUDJPY down 1 Yen through the night at it low before both stabilising this morning.

It’s hard to think of a rates decision in the recent years that’s has got less coverage than this one, with television and print media very quiet in the lead into today, in fact I nearly forgot there was one on today.  Rates are expected to stay on hold at 4.25%, and with weak overnight leads trade on the AUDUSD pair will be muted domestically, it’s unlikely to slip to much further with the last 5 weeks seen the pair bounce between 1.06 and 1.085 on economic news events.  At the time of writing the Australian dollar is at 1.0667 USD. 

The remainder of this week holds a treasure trove of major market moving themes to sway the Australian dollar. Among other top-tier themes, the primary focus today will no doubt be on the Reserve Bank with the rates decision due for release at 0230 AEDT. Wednesday’s local GDP release expected to see the Australian economy grew 0.7 percent in the fourth quarter, representing annual growth of 2.3 percent from 2.5 percent in 3Q. Thursday’s employment data release also has the propensity to materially shift the local unit with 5,000 new jobs expected in February from a previous 46,300.

From a technical perspective the local unit has displayed supportive behaviour around the 106.5 US cent levels and we price action to adhere to these levels leading up to the RBA decision and ensuing statement. Recent comment by Glenn Steven and Co suggests the central will keep their finger off the trigger in today’s policy meeting with rates widely expected to remain on hold at 4.25 percent. In essence the board expects growth and inflation to be close to target suggesting little need for further policy adjustment unless conditions abroad promote further economic hardship locally. CG

Key Economic Events - Australia
Monday - AIG Performance of Service Index (FEB) | TD Securities Inflation (FEB) | Company Operating Profits (4Q)
| Inventories (4Q) | ANZ Job Ads (FEB)
- Currency Account Balance (4Q) | Net exports of GDP (4Q) | RBA Rates Decision | AIG Performance of construction index (FEB)
 - Gross Domestic Product (4Q) | FX Reserves (FEB)
 - Employment Change (FEB)
 - Trade Balance (JAN)


All eyes will be on Greece ahead of Thursday’s deadline for private sector creditors to sign off on the controversial write-down scheme. Participation of 75 percent or greater is required to avoid the introduction of collective action clauses (CAC’s) which is a hostile means of imposing the write-downs although participation of at least 66 percent is required for the CAC’s to be enacted. Passing of these private sector write-downs is a critical component needed to secure the EUR130 euro bailout in order to avoid a hard default scenario with maturing debts due on March 20.

In the biggest week on the U.S monthly data cycle, the week ahead will see jobs take centre stage with non-farm payrolls due for release on Friday. The usual pre-NFP’s conjecture will no doubt sway sentiment in the lead-up to Friday’s official release with ADP private sector gauge, challenger job cuts and the weekly jobless claims a likely pre-cursor. The U.S economy is expected to have created 210,000 new jobs in February against a previous 243,000 with the official unemployment rate predicted to hold steady at 8.3 percent. 

Key Economic Events - Euro-Zone
Monday - German PMI, Services (FEB) | Euro-Zone PMI, Services (FEB) | Euro-Zone Sentix Investor Conf. (MAR) | Euro-Zone Retail Sales (JAN)
 - Euro-Zone GDP (4Q) | Household Consumption (4Q)
 - German Factory Orders (JAN)
- German Industrial Production (JAN) | ECB Rates Decision     
- German CPI (FEB) | German Trade Balance (JAN)

Key Economic Events - United States
Monday - ISM Non-Manufacturing Index (FEB) | Factory Orders (JAN)
- ADP Jobs data (FEB) | Consumer Credit (JAN)
 - Trade Balance (JAN) | Non-farm Payrolls (FEB)

Other Key Economic Events

United Kingdom
Monday - PMI Services (FEB)
Thursday - BoE Rate Decision   
Friday - Industrial Production (JAN) | Manufacturing Production (JAN) | Producer Price Index (FEB) | Visible Trade Balance (JAN) | NIESR GDP Estimate (FEB)


Monday - HSBC Services PMI (FEB)
Friday - Consumer Price Index (FEB) | Producer Price Index (FEB) | Industrial Production (FEB) | Fixed Assets Investment (FEB) | Retail Sales (FEB)

New Zealand
Wednesday - RBNZ Rate decision | Manufacturing Activity (4Q)
Thursday - Card Spending/Retail (FEB)

Monday - Retail Sales (JAN)
Wednesday - Unemployment data (FEB)
Thursday - Consumer Price Index (FEB)

Wednesday - Gross Domestic Product (4Q) | Leading Index (JAN) | Trade Balance (JAN)
Thursday - Machine Tool Orders (FEB)

Thursday - Housing Starts (FEB) | BoC Rate decision   
Friday - Employment data (FEB)


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