Foreign Exchange - Weekly Update - Thursday, May 10, 2012 5:05 - 0 Comments

World First Weekly Update 10th May 2012

World First Weekly Update
10th May 2012

European Bears Tearing at World Economic Recovery

Brief Summary:

• AUD continues to flounder after 50 b.p. fall in interest rates.
• Elections in France and Greece slam Euro recovery and investor confidence.
• US recovery continues, better unemployment and housing data leads the way.

The AUD has fallen heavily against most of the majors over the past week, with a 3% fall against the USD, 1.5% against the EUR and 2.3% against the GBP. Weak trade balance figures in Australia coupled with the fragile political situation in Greece has crippled investor confidence, this has seen the AUD break previously accepted resistance levels which in turn is causing the flash volatility we have been witnessing.
Please see specific commentary for your relevant currency pairs below.

AUDUSD

• The AUD has fallen nearly 8 cents since late Feb as the Australian two speed economy has created a negative flux in investor confidence. The Reserve Bank’s decision to drop interest rates by 50 b.p. highlights increasing fears that economic growth is slowing down and in some areas stalling, supporting this lack of growth was the worse than expected Trade Balance figures released yesterday (-1.59B > -1.38).
• US employment data continues to act as the shining light for the US economic recovery, March job openings figures out last week were the strongest the US has seen since 2008 and the unemployment rate has dropped to 8.1%.
• Woes in Europe are crossing the Atlantic and we have seen the harshest falls in the AUD when both Europe and the US have had worse than expected data released, highlighting the cautious attitude in US investors.

AUDEUR

• EUR has fallen against the USD for the past 8 days straight.
• The European cash rate stayed at 1% (an all time low) last Thursday, this was released right after the PPI m/m figure for the region which came out worse than expected (0.5% > 0.6%).
• Francois Hollande on Monday was voted in as France’s new President. One of the fundamental aspects of his presidential campaign was his continual opposition against European austerity measures as a way to stem the European debt crisis. Since his victory he has not voiced directly how France’s fiscal policy will change but it will no doubt put more pressure on the European political landscape and therefore economic recovery.
• Greece over the weekend also held elections; the result has been a political stalemate with no party winning enough of the vote to form government. The big winners in the election were ‘anti-bailout’ minor parties from the centre left. This has led to European leaders voicing concerns over the real possibility that Greece may leave the EUR adding to the crumbling investor confidence in the area.

AUDGBP

• The biggest mover against the AUD this year for the majors (a 9% fall since February). The GBP has been relatively quiet this week.
• Slightly worse than expected Services PMI data out last week (53.3 <54.4) had little effect on the currency as the AUD tumbled on interest rate and trade balance announcements.
• Tonight the official cash rate is expected to remain at .5% and figures for manufacturing production m/m are expected to be slightly better than last month.

AUDNZD

• The AUD is slightly up for the week against the NZD (1% approx), and it seems both currencies have had a torrid time citing international uncertainty and bad local economic data as the key reasons for the falls.
• NZ Employment change q/q came out worse than expected (0.4% < 0.5%), this figure was followed by a rise in the unemployment rate (6.7% > 6.3%).
• The NZ Reserve Bank governor Alan Bollard stated Europe was the biggest external blight on the NZ economy “The European situation remains fragile…little has been done to address fiscal imbalances and competitiveness issues” which is creating the uncertainty in the exchange rates.

 Patrick Liddy

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