AUD Weekly Market Watch 24/03/2014

Last week recap

EUR/USD Reversed direction, trading lower last week as the Federal Reserve tapered asset purchases for the third time in as many months and geopolitical tensions in the Ukraine subsided. The week began on a positive note, with the rate making its weekly high of 1.3947 on Monday after news that the referendum in Crimea showed an overwhelming majority of Crimean citizens voted in favour of uniting with the Russian Federation. Both the U.S. and EU reiterated their position that the referendum was illegitimate and would not recognize the results, imposing sanctions on the Russian Federation. Monday’s economic numbers had EU Core CPI increase +1.0 y/y as widely anticipated, while CPI rose +0.7%, versus +0.8% expected. U.S. numbers had Capacity Utilization rise to 78.8%, in line with expectations, and Industrial Production, which increased +0.6% m/m, versus +0.2% expected. The pair kept gaining on Tuesday despite German ZEW Economic Sentiment printing 46.6, significantly lower than the reading of 52.8 that was expected, also, EZ ZEW Economic Sentiment showed a reading of 61.5, versus 67.3 expected. U.S. data had Building Permits increase to +1.02M, versus +0.97M expected, and CPI, with both Core and regular CPI increasing +0.1% as widely anticipated. The rate then dropped sharply on Wednesday, after the FOMC released its statement leaving rates unchanged and tapering asset purchases by another $10B per month to $55B. The statement replaced the 6.5% employment rate threshold language with, “In determining how long to maintain the current 0-0.25% target range for the federal funds rate, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2%inflation.” In addition, the statement said “This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends”. After the meeting, Fed Chair Yellen suggested that the Fed would hike rates 6 months after the end of the monthly stimulus programs. The pair then made its weekly low of 1.3749 on Thursday after German PPI came out with a flat reading, versus an expected increase of +0.2%, U.S. numbers had the Philly Fed Manufacturing Index print at 9.0, significantly higher than the reading of 4.2 that was expected, while Existing Home Sales dropped to 4.60M, versus 4.65M expected. The rate recovered some of its losses on Friday, after the Eurozone Current Account came out showing a surplus of +25.3B, versus +18.4B expected, with the previous number downwardly revised from +21.3B to +20.0B. EUR/USD went on to close at 1.3793, showing an overall loss of -0.9% for the week. 

USD/JPY Recovered some of its previous week’s losses last week, as the Fed tapered asset purchases and indicated a tightening bias and with very few economic releases out of Japan. The week began with the rate gaining ground on Monday after positive U.S. Capacity Utilization and Industrial Production data. The pair then made its weekly low of 101.27 on Tuesday after mixed U.S. economic data. The rate then rallied sharply on Wednesday, making its weekly high of 102.67 after the Fed announced its reduction in tapering measures and comments from BOJ Governor Kuroda, who stated, “In a world in which deflationary expectations are entrenched, the holding of cash or deposits becomes a relatively better investment strategy, and firms' incentives to launch new initiatives through investing in business facilities and in research and development become reduced. Thus, Japan's economy was deprived of vitality and this generated a vicious cycle in which the low vitality made it more difficult to overcome deflation.” Also supporting the rate was the Japanese Trade Balance, which showed a deficit of -1.13T, versus -0.89T expected, with the previous number upwardly revised from -1.82T to -1.76T. The pair then consolidated at a slightly higher level on Thursday after mixed U.S. economic data. The pair then declined on Friday, bringing USD/JPY to close at 102.26, showing an overall gain of +0.9% from its previous weekly close.

GBP/USD Continued selling off last week, losing fractionally as the Fed inferred tightening and the BOE’s MPC Meeting Minutes showed a unanimous decision to keep rates and the Asset Purchase Facility unchanged. The week began with Cable consolidating at a slightly lower level on Monday after making its weekly high of 1.6665, after mixed U.S. economic data. The pair extended its losses on Tuesday after comments from BOE Governor Carney, in which he stated, “The global environment for the foreseeable future has opportunities but actually is going to be quite risky as well. We will continue to have risks coming from abroad that we can prepare for and to some extent we can moderate the impact of those risks but we won't be able to escape them”. On Wednesday, Cable dropped sharply after the Fed tapered a further 10B off its monthly stimulus, and the BOE’s MPC Meeting Minutes showed a unanimous decision on the Official Bank Rate at 0.50% and the Asset Purchase Facility at 375B at their latest meeting on the 6th. Also out was UK Claimant Count Change, which showed a significant drop of -34.6K, versus -23.3K expected, with the previous number notably revised up from -27.6K to -33.9K. The rate continued heading south on Thursday as UK CBI Industrial Order Expectations printed at 6, versus an expected 5 reading. Cable then made its weekly low of 1.6474 on Friday after UK Public Sector Net Borrowing came in at +7.5B , versus +7.8B expected. GBP/USD went on to close the week at 1.6483, showing an overall decline of -1.0%.   

AUD/USD Gained ground last week as the Fed tapered asset purchases and the RBA reiterated its neutral stance on Australian interest rates. The week began with the rate gaining on Monday after Australian New Motor Vehicle Sales increased +0.1% m/m, versus a previous reading of -3.5% downwardly revised to -4.0%. The pair continued higher on Tuesday after the RBA’s Monetary Policy Meeting Minutes noted that, “While the labour market was expected to remain subdued for a while and wage growth had declined, the Board observed that this was consistent with conditions in the labour market usually lagging changes in economic activity. The decline in the exchange rate seen to date would assist in achieving balanced growth in the economy, though members noted that the exchange rate remained high by historical standards.” The central bank held rates steady at 2.50% at their latest meeting on March 4th. On Wednesday, the rate made its weekly high of 0.9137 before dropping sharply after the FOMC tapered asset purchases by -10B and inferred higher rates after ending stimulus measures. The pair then consolidated at a slightly higher level after making its weekly low of 0.8994 on Thursday after the United States reported mixed economic data. The rate continued higher on Friday after the Australian CB Leading Index increased +0.2% m/m, versus a previous reading of +0.8%, which brought AUD/USD to close at 0.9081, showing an overall gain of +0.6% for the week

USD/CAD Extended its previous week’s gains last week, as expectations of tighter U.S. interest rates supported the Greenback and despite better than expected Canadian economic data. The week began on a soft note, with the rate declining on Monday despite Canadian Foreign Securities Purchases increasing +1.09B, significantly lower than the +3.24B that was expected. The pair then gained sharply on Tuesday after making its weekly low of 1.1024 as Canadian Manufacturing Sales increased +1.5%, versus +1.1% expected. On Wednesday, the pair continued sharply higher after the U.S. Fed announced their tapering measures and Canadian Wholesale Sales increased +0.8% m/m, versus +1.2% expected. The pair then consolidated at a slightly lower level on Thursday, after making its weekly high of 1.1277, a level not seen since July of 2009 as the United States reported mixed economic numbers. The rate then declined on Friday after Canadian CPI increased +0.8% m/m, versus +0.6% expected, while Core CPI gained +0.7% m/m, versus +0.5% expected, also, Canadian Retail Sales increased +1.3% m/m, versus +0.8% expected, and Core Retail Sales, gaining +1.0%, versus +0.9% that was expected. USD/CAD went on to close at 1.1218, showing an overall weekly gain of +1.0%.     

NZD/USD Showed little movement last week, as the Fed tapered assets and both countries reported mixed economic data. The week began with the rate gaining ground after New Zealand Westpac Consumer Sentiment printed at `121.7, versus a previous reading of 120.1. The pair then made its weekly high of 0.8637 on Tuesday after the New Zealand Current Account came in with a deficit of -143B, versus -1.44B expected. The rate then dropped sharply on Wednesday after a hawkish FOMC statement, and New Zealand GDP, which increased +0.9% q/q, versus +1.0% expected. On Thursday, the pair made its weekly low of 0.8499 as the United States reported mixed economic numbers. The rate then consolidated at a slightly higher level on Friday, bringing NZD/USD to close at 0.8531, showing a loss of four pips and virtually unchanged on the week. 

The Week Ahead

USD: The upcoming U.S. economic calendar is less active than last week, featuring the CB Consumer Confidence survey on Tuesday.  Monday starts the week’s highlights off with Flash Manufacturing PMI (56.6), and Tuesday’s key events include the S&P/CS Composite-20 HPI (13.3%), the CB Consumer Confidence survey (78.7), and New Home Sales (447K).  Wednesday then features a speech by FOMC Member Plosser, Core Durable Goods Orders (0.3%), Durable Goods Orders (1.1%) and Crude Oil Inventories (last 5.9M), while Thursday offers Weekly Initial Jobless Claims (326K), a speech by FOMC Member Pianalto, Final GDP (2.7%) and Pending Home Sales (0.2%). Friday’s important data then concludes the week with the Core PCE Price Index (0.1%), Personal Spending (0.3%) and the Revised University of Michigan Consumer Sentiment survey (80.6).

AUD: The upcoming Australian economic calendar is a bit busier than last week, featuring speeches by RBA Governor Stevens on Wednesday and RBA Deputy Governor Lowe on Tuesday and Wednesday.  The only other weekly highlight will be the RBA’s Financial Stability Review on Wednesday. Resistance for AUD/USD is seen at 0.9112/37, 0.9279/0.9317 and 0.9757, with support noted at 0.8981/0.9085, 0.8889/0.8937 and 0.8819/47.

NZD: The upcoming New Zealand economic calendar is even quieter than last week, only featuring Trade Balance data (600M) on Thursday.  The chart for NZD/USD shows resistance at 0.8532/84, 0.8638 and 0.8840.  On the downside, technical support is expected at 0.8499/0.8523, 0.8366/0.8434 and 0.8303/0.8313.

GBP: The upcoming UK economic calendar is a bit quieter than last week, featuring CPI data on Tuesday.  Monday is quiet, so Tuesday starts the week’s highlights off with the Nationwide HPI (25th-28th, last 0.6%), CPI (1.7%), BBA Mortgage Approvals (50.0K), PPI Input (0.4%), RPI (2.6%), and CBI Realized Sales (30). Wednesday offers little of note, while Thursday’s key events then include Retail Sales (0.5%).  Friday’s important data then concludes the week with the Current Account (-13.5B) and Final GDP (0.7%). Resistance to the topside for GBP/USD shows at 1.6577/1.6640, 1.6724/85 and 1.6802/21, while support for the pair is expected at 1.6441/65, 1.6251/60 and 1.6215.

EUR: The upcoming Eurozone economic calendar is somewhat busier than last week, featuring the German Ifo Business Climate survey on Tuesday.  Monday starts the week’s highlights off with French Flash Manufacturing PMI (49.8), French Flash Services PMI (47.9), German Flash Manufacturing PMI (54.7), German Flash Services PMI (55.8), Flash Manufacturing PMI (53.2), EZ Flash Services PMI (52.6), and the tentatively scheduled German Buba Monthly Report. Tuesday’s key events then include the German Ifo Business Climate survey (110.9), while Wednesday features the GfK German Consumer Climate survey (8.5). Thursday offers EZ M3 Money Supply (1.3%), and Friday’s important data then concludes the week with German Preliminary CPI (0.4%), French Consumer Spending (1.0%), and the tentatively scheduled Italian 10-year Bond Auction. Resistance for EUR/USD is seen at 1.3824/1.3970, 1.4000 and 1.4281, with support showing at 1.3772/98 and 1.3698/1.3748 and 1.3642.

JPY: The upcoming Japanese economic calendar is a bit more active than last week, featuring a speech by BOJ Governor Kuroda on Sunday.  The only other notable events are the release of Household Spending (0.3%), Tokyo Core CPI (0.9%) and Retail Sales (3.6%) on Friday. Resistance for USD/JPY currently shows up at 102.67, 103.75 and 104.83/91, with support indicated at 101.43/102.14, 100.00/101.20 and 99.25/66.

CAD: The upcoming Canadian economic calendar is considerably less active than last week, only featuring a speech by Governing Council Member Lane on Monday. Resistance for USD/CAD is seen at 1.1229, 1.1277 and 1.1723, while support shows at 1.1102/94, 1.1039/1.1099 and 1.0939/90.