AUD Weekly Market Watch 23/3/2015

Last Week recap

EUR/USD Reversed direction, trading sharply higher last week as the FOMC Statement was interpreted by the market as more dovish than expected, and with mostly lower than expected economic data out of both economies. The week began on a positive note, with the rate gaining after making its weekly low of 1.0479 on Monday after ECB President Draghi stated in a speech that, “We are meeting against the backdrop of a steadily recovering economic situation in the euro area. Most indicators suggest a sustained recovery is taking hold. Confidence among firms and consumers is rising. Growth forecasts have been revised upwards. And bank lending is improving on both the demand and supply sides.” Monday’s economic data had U.S. Industrial Production increase +0.1% m/m compared to +0.3% expected, and the Capacity Utilization Rate at 78.9% versus 79.5% anticipated. The pair gained fractionally on Tuesday after EZ ZEW Economic Sentiment printed at 62.4 compared to an expected reading of 58.2, while EZ Final CPI declined -0.3% y/y as widely anticipated. Nevertheless, German ZEW Economic Sentiment printed at 54.8 versus an expected 58.9 reading. The rate then made its weekly high of 1.1040 on Wednesday after the FOMC Statement noted that, “Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting.” And that, “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.” Also, the Fed’s Economic Projections downwardly revised its forecasts for GDP growth and core inflation, making it even more unlikely for an early rate hike. The pair then lost ground on Thursday after the ECB’s Targeted LTRO lent out 97.8B compared to an expected 40.0B. Also out was the Philly Fed Manufacturing Index, which printed at 5.0 versus 7.2 expected. The pair then recovered on Friday after comments from the Chicago Fed President Charles Evans, who stated that, “the biggest risk we face today is prematurely engineering restrictive monetary conditions… It therefore seems prudent to refrain from raising rates until we are highly certain that the economy has achieved a sustained period of strong growth and that inflation is on a clear trajectory to return to target.” EUR/USD went on to close at 1.0819, with an overall gain of 3.0% from its previous weekly close.

USD/JPY Declined last week as the Greenback was pressured by a dovish FOMC Statement and the BOJ kept the size of asset purchases unchanged. The week began on a quiet note, with the pair losing a fraction on Monday after weaker than expected U.S. Capacity Utilization and Industrial Production numbers. The rate consolidated on Tuesday after making its weekly high of 121.51 as the BOJ’s Monetary Policy Statement showed the central bank had kept policies unchanged as was widely anticipated. The BOJ’s Monetary Policy Committee voted 8-1 for keeping the size of asset purchases at ¥80T. In the press conference following the release, BOJ Governor Kuroda said that, “Our QQE policy is exerting its intended effect. There's absolutely no change to our stance of aiming to achieve our 2 percent inflation target at the earliest date possible with a timeframe of roughly two years. Depending on oil price moves, we can't rule out the possibility that core consumer prices will fall slightly year-on-year.” The rate then fell sharply on Wednesday, making its weekly low of 119.28 after a dovish FOMC Statement. The pair then recovered part of its losses on Thursday despite a lower than expected U.S. Current Account and Philly Fed Manufacturing Index. The rate then sold off again on Friday after the BOJ’s Monetary Policy Meeting Minutes showed that two government representatives, one from the Cabinet Office and one from the Finance Ministry said that they hoped the bank would target inflation “taking into account economic and price developments.” USD/JPY went on to close at 120.04, with a loss of -1.1% for the week.

GBP/USD Reversed direction, gaining ground last week as the MPC Meeting Minutes showed a unanimous decision on both the Official Bank Rate and the Asset Purchase Facility and the FOMC indicated it would probably not raise interest rates in the near term. The week began with Cable gaining ground on Monday after lower than expected U.S. Industrial Production and Capacity Utilization data. The rate then declined on Tuesday after lower than expected U.S. housing numbers. On Wednesday, Cable made both its weekly low of 1.4634 and its weekly high of 1.5164 after the BOE’s MPC Meeting Minutes showed unanimous votes on interest rates and stimulus measures. The Minutes stated that, “The sterling effective exchange rate index (ERI) had appreciated by around 2½% during the month to reach its strongest level in over six years. As in previous months, that had primarily reflected an appreciation of sterling against the euro, of nearly 4%, but sterling had also appreciated slightly against the US dollar. Intelligence gained from market contacts suggested that upward pressure on sterling might have been stronger still had it not been for the effect of uncertainty surrounding the forthcoming general election.” Adding to the extreme volatility was the release of the FOMC Statement, which showed a more dovish than expected outlook on U.S. rates. UK economic numbers on Wednesday had Claimant Count Change drop -31.0K, in line with expectations and the UK Average Earnings Index, which increased +1.8% 3m/y compared to an expected increase of +2.2%. Cable then declined sharply on Thursday despite lower than expected U.S. manufacturing and Current Account numbers. On Friday, the pair recovered, gaining sharply after UK Public Sector Net Borrowing printed at +6.2B, compared to an expected +7.7B, which brought the rate to close at 1.4955, with an overall weekly gain of +1.4%.

AUD/USD Reversed direction, rallying last week as the RBA’s Monetary Policy Meeting Minutes suggested that further interest rate cuts were justified but that more economic data was needed before taking action. The week began with the pair gaining on Monday after Australian New Motor Vehicle Sales increased +2.9% m/m compared to a previous reading of -1.9%. The rate then declined on Tuesday after the RBA’s Monetary Policy Meeting Minutes noted that, “There had been little change in exchange rates over February, including for the Australian dollar. An increase in net private capital outflows from China had resulted in net sales of Chinese foreign exchange reserves in recent months, with the renminbi at the bottom of its trading band against the US dollar. Australian lenders had passed on the reduction in the cash rate in February to housing and business borrowing rates.” The pair then gained sharply on Wednesday, making both its weekly low of 0.7590 and its weekly high of 0.7846 after the FOMC Statement indicated that the Fed would keep rates low at least through April. On Thursday, the rate declined despite lower than expected U.S. economic data. The pair then recovered its losses on Friday after a speech by RBA Governor Stevens, in which he stated that, “The massive run-up in resources sector capital spending that was a natural response to earlier very high prices is reversing, causing a drag on demand. So we hope for other sources of demand to speed up to help make up the difference. Some of them are, though not as seamlessly as any of us would like. I've talked a lot about this before so I won't labour the point. It is a major transition. We can hope to assist it, and the Reserve Bank is doing that, and will continue to lend what support it can, within the limits of its powers and consistent with its mandate. The decline in the exchange rate is assisting the transition (as it assisted in absorbing the earlier phase of the mining boom).” AUD/USD went on to close at 0.7765, with an overall gain of +1.7% from its previous weekly close.

USD/CAD Lost ground last week as the Greenback was pressured by a dovish FOMC Statement and Canada reported mixed economic data. The week began on a soft note, with the pair declining after Canadian Foreign Securities Purchases increased +5.73B, significantly more than the decline of -1.95B that was expected. The rate then gained a fraction on Tuesday after Canadian Manufacturing Sales declined -1.7% m/m versus -1.1% expected. On Wednesday, the rate declined sharply, making both its weekly high of 1.2833 and its weekly low of 1.2448 as Canadian Wholesale Sales declined -3.1% m/m versus -0.7% expected, while the dovish FOMC Statement amplified the rate’s volatility and pressured the Greenback. The pair then recovered some of its losses on Thursday despite lower than expected U.S. economic data. The rate then erased its Thursday gains on Friday after Canadian CPI increased +0.9% m/m versus +0.7% expected, while Core CPI increased +0.6% m/m as widely anticipated, nevertheless, Canadian Retail Sales declined -1.7% m/m versus -0.7% expected and Core Retail Sales, which declined -1.8% m/m compared to -0.4% anticipated. USD/CAD went on to close at 1.2551, with a weekly loss of -1.8%.

NZD/USD Gained sharply last week as New Zealand reported mixed economic numbers and the Greenback was pressured by a dovish FOMC Statement. The week began with the pair gaining ground on Monday after lower than expected U.S. economic numbers. The rate then declined on Tuesday after the New Zealand GDT Price Index declined -8.8% compared to a previous reading of +1.1%, while the New Zealand Current Account showed a decline of -3.19B, in line with expectations. On Wednesday, the pair made its weekly low of 0.7273 before trading sharply higher after the FOMC Statement suggested the Fed would hold off on any rate hikes at least through April. Also out on Wednesday, New Zealand GDP increased +0.8% q/q as widely anticipated. The rate then lost ground on Thursday despite lower than expected U.S. Current Account and Manufacturing data. The pair gained sharply on Friday, making its weekly high of 0.7590 in the absence of any significant data out of either country. NZD/USD went on to close at 0.7562, with an overall weekly gain of +3.0%.

The Week Ahead

USD: The U.S. economic calendar is active this coming week, featuring housing market data on Monday and Tuesday. Monday starts the week’s highlights off with Existing Home Sales (4.91M) and a speech by FOMC Member Fischer, and Tuesday’s key events include a speech by FOMC Member Williams, CPI (0.2%), Core CPI (0.1%), Flash Manufacturing PMI (54.9),  and New Home Sales (472K). Wednesday then offers a speech by FOMC Member Evans, Core Durable Goods Orders (0.4%), Durable Goods Orders (0.2%), and Crude Oil Inventories (last 9.6M). Thursday features Weekly Initial Jobless Claims (295K) and a speech by FOMC Member Lockhart, while Friday’s important events conclude the week with a speech by FOMC Member Fischer, Final GDP (2.4%), the Revised University of Michigan Consumer Sentiment survey (92.5) and a speech by Fed Chair Yellen.

AUD: The Australian economic calendar is quiet this coming week, only featuring a speech by RBA Assistant Governor Edey on Tuesday and the RBA’s Financial Stability Review on Wednesday. Resistance for AUD/USD is seen at 0.7846/75, 0.7912 and 0.8024/34, with support noted at 0.7719/56, 0.7625/43 and 0.7684/0.7705.

NZD: The New Zealand economic calendar is very peaceful this coming week, only featuring the Trade Balance (355M) on Tuesday. The chart for NZD/USD shows resistance at 0.7847/88, 0.7679/88 and 0.7595/0.7659.  On the downside, technical support is expected at 0.7572, 0.7430/92 and 0.7312.

GBP: The UK economic calendar is quite busy this coming week, featuring CPI data on Tuesday. Monday starts the week’s highlights off with CBI Industrial Order Expectations (9), and Tuesday’s key events include CPI (0.1%), PPI Input (1.6%) and RPI (0.9%). Wednesday then offers BBA Mortgage Approvals (36.9K), while Thursday features Retail Sales (0.4%), the FPC Statemen and CBI Realized Sales (20). Friday then concludes the week’s highlights with speeches by MPC Member Haldane, BOE Governor Carney and MPC Member Broadbent. Resistance to the topside for GBP/USD shows at 1.5222, 1.5033/1.5164 and 1.4988, while support for the pair is expected at 1.4950, 1.4698 and 1.4634.

EUR: The Eurozone economic calendar is active this coming week, featuring the German Ifo Business Climate survey on Wednesday. Monday starts the week’s highlights off with a speech by ECB President Draghi, and Tuesday’s key events include French Flash Manufacturing PMI (48.9), French Flash Services PMI (53.1), German Flash Manufacturing PMI (51.5), German Flash Services PMI (55.0), EZ Flash Manufacturing PMI (51.6) and EZ Flash Services PMI (53.9). Wednesday then offers the German Ifo Business Climate survey (107.4), while Thursday features the EZ GfK German Consumer Climate survey (9.8), the EZ M3 Money Supply (4.3%) and EZ Private Loans (0.1%). That concludes the week’s highlights since Friday offers nothing notable. Resistance for EUR/USD is seen at 1.1097/1.1159, 1.1040 and 1.0906, with support showing at 1.0762/86, 1.0608 and 1.0461.

JPY: The Japanese economic calendar is rather quiet this coming week, only featuring Household Spending (-3.1%), Tokyo Core CPI (2.2%) and Retail Sales data (-1.4%) on Friday. Resistance for USD/JPY currently shows up at 122.02, 121.84 and 121.19, with support indicated at 120.47/82, 119.62 and 118.29/119.28.

CAD: The Canadian economic calendar is not very busy this coming week, only featuring a speech by Governing Council Member Lane on Wednesday, and then a speech by BOC Governor Poloz and the Annual Budget Release on Thursday. Resistance for USD/CAD is seen at 1.2772/1.2822, 1.2662/96 and 1.2591, while support shows at 1.2575, 1.2563/91 and 1.2448.