Euro higher after Merkel re-elected

Australian Dollar:

After the blockbuster Thursday following the Fed’s surprise move to hold off on tapering, the Aussie traded flat for much of Friday as it consolidated above the 94 psychological level. Investors were unwilling to take the Aussie any higher than the Thursday night highs above 95 as many began picking their adjusted target dates for tapering and the initial euphoria began to fade. A fall in US equities saw us fall further on Friday night as a hawkish comment from a Fed official well and truly brought us back down to earth while a return to focus on the US debt-ceiling and what could occur if a solution is not reached by the end of October also had investors drifting back towards the safe have greenback. We currently open close to levels seen just before the Fed announcement at 93.75 with the focus today likely to be on HSBC Chinese flash manufacturing PMI in what is otherwise shaping up to be a fairly quiet week for local data.

We expect a range today of 0.9320 – 0.9435

New Zealand Dollar:

The Kiwi was one of the best performers last week reaching highs above 84 US cents after the announcement by the Fed that they were holding off on tapering for the time being. The local unit also received support from improved GDP figures on Thursday which showed yearly growth higher than expected at 2.5% which has provided a greater case for raising interest rates next year. While other currencies began to drift lower on Friday against the greenback the Kiwi managed to hold onto most of its gains and we currently open at 0.8350 despite losses on Wall Street on Friday night. The relative strength of the Kiwi is most pronounced against the Aussie which has given up most of its post FOMC gains and AUD/NZD is at close two month lows this morning at 1.1230. Looking ahead this week is shaping up to be much quieter than last week although some Chinese data today and local trade balance may provide some direction.

• We expect a range today of 0.8310 – 0.8420

Great British Pound:

We find cable trading either side of 1.60 this morning after we failed to maintain post-FOMC gains as concerns for the US debt ceiling weighed on investor confidence and pushed the safe havens higher on Friday night. EUR/GBP has also experienced a strong move higher and is currently above 0.8450 after what appears to be a conclusive victory for Merkel in the German elections yesterday. UK GDP will be the main focus for investors this week while the continued US Fed taper story is likely to remain a source of direction with several Fed members due to make comments on last week’s decision. Meanwhile with the South Pacific crosses experiencing similar forces to the pound we remain flat against both the Aussie (1.7040) and the Kiwi (1.9150).

• We expect a range today of 1.6980 – 1.7095 

Majors:

The greenback fell across the board last week after the Fed surprised the market and decided not to begin tapering this month. After significant volatility at the time of the announcement, currencies calmed somewhat on Friday as investors began speculating on when the tapering would actually start, rather than just focusing on the fact it hasn’t started yet, while at the same time conversations also turned to the US debt ceiling which weighed on risk appetite. Fed member Bullard commented on Friday night that the decision not to taper was a very close call and even said that they may look at a small taper in October. Central bank focus looks set to continue this week with comments due from other Fed members which will be dissected for any hint of when the tapering could start. Over in Europe the main focus has been on the German elections in which it appears Merkel has managed to pull off the largest win in over 20 years, providing greater certainty to the survival of the Euro while also getting us past an event that has been weighing on investors’ minds for much of the year. The Euro opened marginally higher this morning, breaking just above 1.3550 and maintaining the two cent gains achieved after Thursday’s announcement. USD/JPY opens a tad lower this morning at 99.25 after a small recovery in the greenback on Friday night had it pushing back above 99.60. 

Data releases:

• AUD: No data today
• NZD: No data today
• JPY: Bank holiday
• GBP: Bank of England rate decision and asset purchase target
• EUR: Eurozone PMI Manufacturing, Services and Composite, German PMI
• USD: Markit US PMI, Chicago Fed Nat Activity Index