15th February 2016 – Weekly Currency Market Report

CompassLandscape1

 

The Market in Brief:

          • AUD ends volatile week flat
          • Fed Chair neutral
          • RBA’s Steven’s says markets “dropping their bundle”
          • Gold now up 7% over the week  

          Crude Oil rallies 12% on Friday

Market Events Due:

        • US Holiday (Monday)
        • Chinese Trade Balance (Monday) 
        • RBA MPC Minutes (Tuesday)
        • US FOMC Minutes (Thursday)
        • Australian Unemployment (Thursday)
        • UK Retail Sales (Friday)

        US Inflation (Friday)

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AUDUSD: The A$ managed to hold the medium term upward channel despite two sharp sell offs midweek. The Chinese New Year holiday has meant a quieter and illiquid market, however testimony from Fed Chairwoman Yellen still meant for a volatile few days. Her comments were on the neutral side which disappointed some; leaving the door open for further interest rate hikes but still concerned over the financial markets volatility and slowing global growth (i.e. China). The RBA’s Stevens followed suit stating he saw the doom and gloom as overdone. Looking ahead and the US are on holiday today, meaning the status quo will be held for at least another 24 hours so price action may stay that way until midweek when the minutes from the most recent Federal Reserve’s FOMC meeting are released and followed by domestic unemployment data. Friday’s US Inflation figures round out the weeks data, (which are expected to show signs of life). Technically the charts also suggest the US$ may have a fight back this week as we struggle to break through the 50% retracement of the 7 month US$2.5c range. We also note the final stages of a head and shoulders pattern forming, which if broken targets the early January lows.

AUDEUR: The A$ has managed to hold its own somewhat here, although the pair touched 3 ½ month lows and continued the downtrend as forecast last week. Volatile equity markets and hedge fund concerns over global growth prospects have seen a continuation of the Euro’s safe haven status. This of course goes in the face of political instability and a dire financial situation throughout their mainland. Although there are a number of economic data releases to come over the coming weeks it is the global economic sentiment and then the ECB meeting next month that will determine whether we see a reversal of fortunes for local importers. Technically however there may be some good news for those buying Euro’s as 2c away is the 50% retracement of the extremes seen in the rate seen between 2008 and 2012. A break of that and we’re in trouble.

AUDGBP: Flat as the English countryside. A few bumps here and there but an otherwise completely sideways 150 point price action. Focus is fixed firmly on the US and Europe, so data that showed a 3rd straight month of declines in UK Manufacturing caused but a brief spike. What the UK are really looking forward to is the date of the EU referendum to decide whether to stay (then negotiate better terms) or bail completely. The camp for the latter choice grows by the day. As per the last report; “Technically the pair remains holding the 50% retracement level of this last month’s extremes. We suggest taking advantage of your chosen side for now, at least until said range is broken”.

AUDNZD: The Tasman Cross fell for 4 days in a row, then clawed all those losses back and more on Friday to finish with a very modest gain. I therefore hope you headed my call of last week to wait before paying those Kiwi Dollar invoices. The initial move lower was in reaction to the NZ Unemployment rate dropping and technically we tested the lows that have held since May. Those levels continued to act as firm support and the bounce was aided by a more upbeat than expected speech from the RBA Governor. The week ahead will be a biggie as we hear news on NZ Retail Sales, Inflation Expectations, Global Dairy Trade price and the Producer Price Index. A majority of the above releases are expected to be on the weak side, so we see a test and potential break of technical resistance, 50 points above. 

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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