18th January 2016 – Weekly Currency Market Report

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The Market in Brief:

    • AUD and NZD continue to fall
      Australian Unemployment up
      UK Manufacturing down
      Oil trades below $30 pb
      Equities continue their violent price action

Market Events Due:

  • US Holiday (Monday)
    Chinese GDP (Tuesday)
    Chinese Industrial Production (Tuesday)
    UK Inflation (Tuesday)
    German ZEW Economic Sentiment (Tuesday)
    NZ Dairy Prices (Wednesday)
    NZ Inflation (Wednesday)
    UK Unemployment (Wednesday)
    US Inflation (Thursday)
    ECB Meet (Thursday)
    UK Retail Sales (Friday)

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AUDUSD: This pair has spent the last 5 days in either a sideways or downward trajectory. Continued global economic uncertainty, higher domestic unemployment (as we forecast) coupled with a downturn in Chinese stocks and a crash in the price of Crude Oil all contributed to multi year lows. Although we should get off to a slow start today, being a US holiday (Martin Luther King Day), the rest of the week is set to be volatile as we react to important Chinese, local and US data releases. This weeks US Inflation print will be key to determining the timing of a second interest rate hike from the Federal Reserve’s FOMC and therefore ensures a nervous few days ahead that will be prone to sudden spikes. Looking to the charts and as suggested last week, the downside broke with a look higher being brief and well taken advantage of by a healthy number of clients. The next few days ahead promises to be no different with there not being any data due that should trigger a prolonged correction higher. Technically support sits 150 points below, being the June’04 and March’09 lows, whilst upside targets will depend on the developments over the coming days, so we’d suggest calling in to discuss placing target orders in both directions for us to watch on your behalf.

AUDEUR: Although we did get our targeted 150 points of upside, the common currency continued to benefit from a repatriation of wholesale investors, who borrowed cheap funds to invest in higher yielding securities, thus pushing this pair to 3 month lows. News that Germany reported its fastest growth in 4 years has supported the move as we await the first European Central Bank meeting of the year that comes on Thursday. No move is expected, but again we are more interested in their rhetoric. On the charts we are just shy of the long term 50% retracement from the lows seen in October’08 to highs of August’12, so could well see these levels hold for now and a good enough place for those selling their Euro receipts.

AUDGBP: The Aussie has actually held its own here and closed largely flat on the week as the markets all but erase thoughts of an interest rate hike from the Old Lady of Threadneedle Street. Data that saw the slowest UK Factory Growth since 2013 has sent Sterling to fresh 5 year lows versus the Greenback and those with exposure here should be mindful of the economic releases that are to come over the coming days. Inflation is due tomorrow, Unemployment numbers on Wednesday and Retail Sales on Friday – with any of the above having the potential to spark a serious move. Technically we hit and bounced away from our trend line support, that was highlighted in last weeks report, of the medium term upward channel and should that hold again then we have the potential to break back through 0.50 / 2.00 levels. However the data to come is so unpredictable that it would be foolhardy to not at least investigate protection against adverse moves. Call us to discuss how.

AUDNZD: Interestingly the Tasman Cross tracked 2 cents higher for the first four days of last week, to then perform the classic “up the stairs down the escalator” manoevre and lose it all on Friday – therefore seeing our forecast from our last report of the range being held hold true. The week ahead nonetheless should see said range break with Dairy Prices and NZ Inflation, both released between Tuesday night and Wednesday morning – so be prepared.

AUDCAD: The plunge in crude oil prices resulted in the Canadian Dollar printing at 13 year lows against its US counterpart and just off its recent highs aginst the A$. We now look to the Bank of Canada’s interest rate meeting, first thing Thursday morning our time, with a slightly higher chance of an interest rate cut which should result in a break to fresh highs.

AUDZAR: The Rand is suffering on all fronts, hitting its weakest levels ever as the market is spooked by developments both in the R.S.A. and in China. One Jo’burg based commentator is calling for an equivalent AUDZAR rate of 13.50 in H1’15 and potentially 12.50 even before Easter, as the falling commodity prices and political unrest further dent the already faltering economy. We think he may be a couple of Rand short and target 15.00 levels!

AUDCHF: A return to lows last seen in October as the market seeks the safe haven of the Swissy. There is no data due for the week ahead, so direction will be determined locally and by the overall economic sentiment. Technically there appears room for a small bounce so those looking to buy Franc’s may want to target the early part of this week to do so.
 

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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