AUD Weekly Market Watch 22/09/2014

Last Week recap

EUR/USD resumed its decline last week as the Fed cut asset purchases and delivered a mildly hawkish statement and the ECB had its first Targeted LTRO. The week began on a soft note, with the rate declining after the OECD lowered global growth estimates and warned “given the low-growth outlook and the risk that demand could be further sapped if inflation remains near zero, or even turns negative, the OECD recommends more monetary support for the euro area.” The Eurozone forecast was downwardly revised to +0.8% in 2014 and +1.1% in 2015 versus +1.1% and +1.7% respectively, while the U.S. projection came down to +2.1% in 2014 and +3.1% in 2015, down from +2.6% and +3.5% respectively. Monday’s eco-data had the U.S. Empire State Manufacturing Index print at 27.5 compared to an expected reading of 16.4, and U.S. Capacity Utilization at 78.8% versus 79.3% expected; also out was U.S. Industrial Production, which declined -0.1% m/m, compared to an expected increase of +0.4%. On Tuesday, the pair made its weekly high of 1.2994 after the German ZEW Economic Sentiment Index came out with a reading of 6.9 — its 9th consecutive decline —nevertheless, the number was better than the expected 5.2 print. Conversely, Eurozone ZEW Economic Sentiment came out with a reading of 14.2 versus 21.3 expected. U.S. numbers had PPI show a flat reading m/m, while Core PPI increased +0.1% m/m as widely expected, also U.S. TIC Long Term Purchases declined -18.6B, significantly worse than the expected increase of +24.3B. The rate then dropped sharply on Wednesday, after the FOMC tapered another $10 million off its asset purchase program with the intention of winding down QE in October — depending on economic data —, the central bank reiterated it would leave the Fed Funds rate at zero for a “considerable time”, but according to the Fed’s Economic Projections, if the economy continues to improve, members believe rates could begin rising as soon as the end of the year. The statement reiterated that, “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” Also out on Wednesday were U.S. CPI, which declined -0.2% m/m versus an expected increase of +0.1%, and Core CPI, which showed a flat reading m/m versus +0.2% expected. The pair recovered some of its previous day’s losses on Thursday after lower than expected U.S. Building Permits that declined to +1.00M in August, versus +1.04M expected, and U.S. Housing Starts, which declined to 0.96M versus 1.04M anticipated. The ECB had its first Targeted LTRO on Thursday, lending €82.6B to 255 EZ banks. The number was significantly lower than the €100 -€300B expected. The rate then resumed its downtrend on Friday, making its weekly low of 1.28268 on the first day of the G20 Meeting in Australia. EUR/USD went on to close at 1.28273, with an overall loss of -1.0% for the week.

USD/JPY extended its previous week’s gains last week, trading at a level not seen since August of 2008. The rate was supported by the FOMC Statement and asset flows continuing to favour the Greenback. The week began with the rate gaining fractionally on Monday after the United States reported mixed economic numbers. On Tuesday, the pair declined after disappointing U.S. PPI and TIC Long Term Purchases data; also, in a speech, BOJ Governor Kuroda stated that, “The year-on-year rate of change in the consumer price index (CPI, excluding fresh food) was minus 0.4 percent in April last year when QQE was introduced, but it has improved since then, recently registering 1.3 percent excluding the direct effects of the consumption tax hike.” The rate then made its weekly low of 1.0680 on Wednesday after a mildly hawkish FOMC Statement. The pair continued sharply higher on Thursday after the Japanese government cut its overall economic assessment for the first time in five months. The pair then made its weekly high of 1.0886 on Friday in the absence of any significant data from either country. USD/JPY went on to close at 108.66, gaining +1.2% from its previous weekly close.

GBP/USD eked out a gain last week after extremely volatile trading in the wake of the Scottish referendum, which saw the Scottish people reject independence by a 55 to 45 percent margin. The week began with Cable dropping on Monday after mixed U.S. economic numbers. The pair then rallied on Tuesday after making its weekly low of 1.6161 as UK CPI came out at +1.5% y/y in line with expectations, while PPI Input declined -0.6% m/m versus an expected increase of +0.1%. Also out was RPI, which increased +2.4% y/y versus +2.5% anticipated. On Wednesday, Cable consolidated at a slightly lower level after a somewhat hawkish FOMC Statement and the UK Claimant Count Change, which showed a decline of -37.2K versus -29.7K expected, while the UK Unemployment Rate declined to 6.2% from 6.4%. Also, the MPC Monetary Policy Meeting Minutes showed two members, Ian McCafferty and Martin Weale had dissented voting for a rate hike, while members voted unanimously on the size of the Asset Purchase Facility at 375B. Cable then rallied sharply on Thursday on the back of a “no” vote on Scottish independence, also out was UK Retail Sales, increasing +0.4% m/m as widely anticipated. The rate then sold off sharply on Friday after making its weekly high of 1.6526 as traders squared position and in the absence of any significant economic data out of either country. GBP/USD went on to close at 1.6285, with an overall gain of only +0.1% for the week.

AUD/USD extended its losses last week, declining fractionally as the RBA reiterated its neutral stance on interest rates and after a somewhat hawkish FOMC statement. The week began on a positive note, with the rate gaining ground on Monday after mixed U.S. economic data. The pair continued higher on Tuesday, making its weekly high of 0.9111 after the RBA’s Monetary Policy Meeting Minutes stated that, “the exchange rate remained above most estimates of its fundamental value, particularly given the declines in key commodity prices and, overall, had offered less assistance to date than would normally be expected in achieving balanced growth in the economy.” The rate then dropped sharply on Wednesday after the FOMC Statement outlined its criteria for coming rate hikes. The pair recovered some of its losses on Thursday after lower than expected U.S. Housing data. AUD/USD then made its weekly low of 0.8920 on Friday in the absence of any significant data out of either country, bringing the rate to close at 0.8922, showing an overall decline of -0.1% from its previous weekly close.

USD/CAD reversed direction, declining last week as Canada reported mostly better than expected economic data and despite a slightly hawkish FOMC Statement. The week began with the pair declining after making its weekly high of 1.1097 on Monday as the United States reported mixed economic numbers. The rate continued heading south on Tuesday after Canadian Manufacturing Sales increased +2.5% m/m compared to an expected increase of +1.1%. On Wednesday, the pair gained ground in the wake of the FOMC Statement. The rate then fell sharply on Thursday after Canadian Foreign Securities Purchases increased +5.30B, significantly higher than the expected increase of +2.47B. Friday saw the rate make its weekly low of 1.0885 after Canadian Core CPI gained +0.5% m/m versus +0.2% expected, while CPI came out with a flat reading m/m versus an expected decline of -0.1%. Also out was Canadian Wholesale Sales, which declined -0.3% m/m versus an expected increase of +0.8%. USD/CAD went on to close at 1.0962, showing an overall loss of -0.9% for the week.

NZD/USD extended its previous week’s losses last week as the FOMC Statement supported the Greenback and despite mostly better than expected numbers out of New Zealand. The week began with the pair gaining on Monday as the United States reported mixed economic data. The rate then made its weekly high of 0.8228 on Tuesday after the New Zealand GDT Price Index printed at 0.0% versus a previous reading of -6.0%, while the NZ Current Account came out with a deficit of -1.07B versus -1.04B expected. On Wednesday, the pair dropped sharply, making its weekly low of 0.8075 on the back of a somewhat hawkish FOMC Statement and mixed U.S. economic numbers. The pair then rallied on Thursday after the release of New Zealand GDP, which increased +0.7% q/q from a previous reading of +0.1% and better than the expected rise of +0.6%. The rate then resumed its downtrend on Friday in the absence of any significant economic data out of either country. NZD/USD went on to close at 0.8115, with an overall loss of -0.3% from its previous weekly close.

The Week Ahead

USD: The upcoming U.S. economic calendar is quieter this week, featuring GDP data on Friday. Monday starts the week’s highlights off with Existing Home Sales (+5.21M) and a speech by FOMC Member Dudley, and Tuesday offers speeches by FOMC Member Kocherlakota and Powell. Wednesday’s key events then include New Home Sales (+432K) and a speech by FOMC Member Mester, while Thursday features Durable Goods Orders (-17.7%), Core Durable Goods Orders (+0.7%), and Weekly Initial Jobless Claims (294K). Friday’s important data then concludes the week with Final GDP (+4.6%) and the Revised University of Michigan’s Consumer Sentiment Index (85.1).

AUD: The upcoming Australian economic calendar is quiet this week, only featuring the CB Leading Index (last +0.4%) and the RBA Financial Stability Review on Wednesday, plus a speech by RBA Governor Stevens on Thursday. Resistance for AUD/USD is seen at 0.9200/74, 0.9003/10 and 0.8957, with support noted at 0.8920, 0.8889 and 0.8847.

NZD: The upcoming New Zealand economic calendar is also sparse, only featuring the Westpac Consumer Sentiment survey (last 121.2) on Monday and the New Zealand Trade Balance (-1125M) on Tuesday. The chart for NZD/USD shows resistance at 0.8346/54, 0.8268/85 and 0.8171/76. On the downside, technical support is expected at 0.8114/22, 0.8075/82 and 0.8049/50.

GBP: The upcoming UK economic calendar is less active this week, only featuring BBA Mortgage Approvals (+42.9K) and Public Sector Net Borrowing (+10.3B) on Tuesday, as well as Nationwide HPI (last +0.8%) and CBI Realized Sales (34) on Thursday. Resistance to the topside for GBP/USD shows at 1.6524/34, 1.6465/96 and 1.6286/1.6357, while support for the pair is expected at 1.6245/51, 1.6204/15 and 1.6161.

EUR: The upcoming Eurozone economic calendar is busy this week, featuring a speech by ECB President Draghi on Monday. Monday starts the week’s highlights off with the tentatively scheduled German Bundesbank’s Monthly Report and Draghi’s speech, and Tuesday’s key events include French Flash Manufacturing PMI (47.1), German Flash Manufacturing PMI (51.3), Eurozone Flash Manufacturing PMI (50.6), French Flash Services PMI (50.2), German Flash Services PMI (54.6), and Eurozone Flash Services PMI (53.2). Wednesday then features the German Ifo Business Climate survey (105.9), while Thursday offers EZ Private Loans (-1.5%) and the EZ M3 Money Supply (+1.9%). Friday’s important data then concludes the week with GfK German Consumer Climate survey (8.5). Resistance for EUR/USD is seen at 1.3003, 1.2978/86 and 1.2834/1.2921, with support showing at 1.2744/54, 1.2661 and 1.2625.

JPY: The upcoming Japanese economic calendar is less active this week, featuring Flash Manufacturing PMI (52.5) on Wednesday, SPPI (+3.7%) on Thursday, and Tokyo Core CPI (+2.7%) and National Core CPI (+3.2%) on Friday. Tuesday is also a Bank Holiday in Japan. Resistance for USD/JPY currently shows up at 111.78, 110.39 and 109.45, with support indicated at 108.53/98, 107.39 and 105.70.

CAD: The upcoming Canadian economic calendar is quiet this week, only featuring a speech by Governing Council Member Wilkins on Monday, as well as Retail Sales (+0.4%) and Core Retail Sales (-0.1%) on Tuesday. Resistance for USD/CAD is seen at 1.1172/94, 1.1097/98 and 1.1030/52, while support shows at 1.0903/41, 1.0859/86 and 1.0809/20.