Foreign Exchange - Weekly Update - Wednesday, May 16, 2012 22:46 - 0 Comments

World First Weekly Update 17th May 2012

World First Weekly Update
17th May 2012

  Will Greece stay or will they go?

Brief Summary:

• AUD below parity for the first time in 2012. This is the lowest the AUD has been since December 2011.
• Euro woes continue weakening Euro to all-time lows.
• US data slightly worse but average data in Australia halts movement.

The AUD has fallen heavily against the majors over the past week, with a 2.27% fall against the USD (4.9% since 1st May), 0.4% against the EUR (4.9% since 1st May) and 1.06% (3.36% since 1st May) against the GBP. The fall in interest rates and the fragile European political situation has seen the AUD fall below parity against the USD.
Small slivers of confidence did shine through the RBA minutes which announced moderate growth in the economy, highlighted by better than expected employment data, taking the unemployment rate to around 5.25%. The inflation rate was slightly lower than expected which has coupled international turmoil to cause market falls.

Please see specific commentary for your relevant currency pairs below.

AUDUSD

• US retail sales were slightly worse than expected overnight (0.0% < 0.1%) coupled with Core CPI data which came out close to expectations (0.1% < 0.2%) has led to local losses in equities but a strengthening in the USD.

• The AUD has fallen below parity for the first time since December 2011 falling nearly 5 cents since last week. This is predominately due to the Reserve Bank’s decision to drop interest rates by 50 b.p and Greece’s inability to solve their political dramas and form a coalition government.

• A new 2012 low for the AUD against the USD as reached this week 0.9906, the dollar looks to be sliding further if conditions locally and internationally do not begin to improve.

AUDEUR

• AUD has continued a steady fall against the EUR since the beginning of May leading to a weekly low of 0.7740 overnight.

• Greeks are expected to be back to the polls next month after post-election attempts to form a ruling coalition in Athens broke down yesterday after nine days. This may give rise to anti-bailout leadership that would tear up the conditions attached to 240 billion euros ($307 billion) of aid agreed to under the previous government.

• Euro worries continue with the thoughts that Greece may ultimately leave the 17-nation Euro adding to the crumbling investor confidence in the area.

• Spain’s top 5 lenders set aside almost 15 Billion Euros ($19.4 Billion) in provisions to cover risky property deals. This was after Spain’s 4th largest bank, Bankia, was bailed out late last week. This is the country’s fourth attempt to deal with a 2008 property market crash which has raised fears the country may need further international stimulus to aid its economic recovery.

AUDGBP

• Another all-time low for 2012 was reached this week with the GBP when it fell to 0.6181 yesterday. The rate has recovered slightly but remains 1% lower from its position last week.

• UK Trade Deficit stayed largely unchanged in March despite a rebound in exports to countries outside the European Union.

• The Bank of England tonight will release its quarterly inflation report, highlighting inflation figures and unemployment change. Also released tonight is UK’s Claimant Count Change (Change in the number of people claiming unemployment-related benefits during the previous month) which is expected to be slightly higher than last month’s figure.

AUDNZD

• NZ Core Retail Sales were down from the previous 2 quarters following the Rugby World Cup and the influx of 133,200 visitors to NZ. Although in the longer term the trend shows both sales volumes and values have flattened after a period of strong increases but core retail sales volumes and values have fallen.

• The Producer Price Index, being the indicator of consumer inflation, will be released this afternoon which is expected to remain unchanged from last month.

• The AUD is slightly up for the week against the NZD (0.5% approx), essentially continuing the trend from last week where both currencies have fallen against the majors due to international turmoil, but the AUD has weathered the storm slightly better than the NZD.

Cat in the Bag: Repercussions of Greece falling out of the Euro

• If Greece leaves the Euro this will cause a huge movement in markets around the world

• European banks hold significant Greek debt on their balance sheets denominated in Euro’s. If Greece leaves and goes back to the Drachma, the currency will devalue significantly, meaning a big hole in those banks balance sheets

• Loss of confidence in Greece will spill into other countries; will your money be safe in a Spanish or Italian Bank?

• Stock markets around the world will plummet

• AUD, NZD will be sold off heavily, along with the EUR as confidence in the Euro drops, and investors scramble to move their money out of the Eurozone.

• The question is; has Germany had enough of propping up other countries with hard earned German Tax payer money?

Ray Ridgeway

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