11th January 2016 – Weekly Currency Market Report

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The Market in Brief:

    • AUD and NZD fall across the board
    • US Jobs data strengthens
    • Chinese concerns continue
    • Equituies tumble

Market Events Due:

  • UK Manufacturing (Tuesday)
  • Chinese Trade Balance (Wednesday)
  • Australian Unemployment (Thursday)
  • BoE meet (Thursday)
  • US Retail Sales (Friday)

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AUDUSD: The local currency spent each of the first 5 working days of 2016 recording a loss, falling a massive 5% in the process, despite a healthier than expected Trade Balance data release. Concerns over Chinese growth prospects, geo-political tensions, a fall in commodity prices along with sinking equity markets, (the worst opening week in history), have all weighed on sentiment and increased the chances of another interest rate cut from the RBA next month. The negativity continued on Friday with a solid US Non-Farm Payrolls report that saw virtually all economists’ forecasts blown away and nudged the A$ lower still. Chinese Inflation data was released over the weekend and although it came in slightly higher than last month, failed to meet forecasts and so we hold little hope of a sizeable recovery today. Having said that a Japanese bank holiday should ensure any further losses are contained for the next 24 hours, unless the Shanghai stock market tumbles again. Domestically our focus is on Thursday’s Unemployment data and with a print expected to show a correction to the sizable pick up in jobs created over the last 2 months, the outlook for short term price action threatens further downside. We open at September’15 lows, with no major technical support levels seen below here for at least 2 cents. Any upside is likely to be short lived and taken advantage of in this current environment, so we suggest calling in to book target orders for us to watch around the clock.  

AUDEUR: A dire picture for this pair as well, despite EU centric data being poor. The main reason we are trading at lows seen last October is wholesale investors repatriating higher yielding currencies back into the cheaper funding vehicle of the common currency.  There are no major data releases expected from the continent at all this week, so focus will be centred locally and should mean we hold here and potentially correct 150 points higher from these oversold levels.

AUDGBP: We have seen just a 3.5% fall here as both currencies have suffered at the hands of the US$. Sterling is at 5+ year lows against the Greenback, due to the markets correcting their thoughts of a UK interest rate hike. Price action should hot up tomorrow evening with the release of UK Manufacturing numbers and also on Thursday when the Bank of England’s MPC meet. Technically we do appear to have some further downside but that should be limited to 100 points as we hit the 3 month old trend line support of the medium term upward channel.

AUDNZD: The Tasman Cross has spent the last few days trading in a 2 cent range as the Chinese concerns hit exporters hopes from both nations. A fourth fall in Global Dairy Prices out of the past six readings has also kept the NZ unit subdued. There is no major data due from the land of the long white cloud until later in the month, so the next week should see this pair hold the range – unless Australian Unemployment numbers shock.  

ALTERNATIVE CURRENCY HEDGING: Ask us about a great alternative to traditional forward contracts that give the ability to cover at attractive levels, but with the flexibility to walk away should the spot rate improve or the contract not be required.

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Jim Devonport

Corporate & HNW Client Manager 

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