8th February 2016 – Weekly Currency Market Report

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The Market in Brief:

        • AUD ends volatile week flat
        • NZD higher
        • RBA keep rates on hold
        • BoE keep rate on hold

        US Unemployment drops  

Market Events Due:

      • Chinese New Year
      • UK Manufacturing (Wednesday)
      • FOMC’s Yellen speech (Wednesday)
      • RBA’s Steven’s speech (Friday) 

      German GDP (Friday)

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AUDUSD: An interesting past week as the local currency came within 25 points of our USD 2cent upside target. The RBA kept interest rates at 2% and appeared to dampen thoughts of a further rate cut. However, those midweek gains were reversed with Fridays release of the US Non-Farm Payrolls as although the number of new non-agricultural jobs fell, the actual US unemployment rate dropped to 4.9% – a level not seen since March 2008. The week ahead promises to be slightly quieter, due to the start of Chinese New Year and as we have no major data until midweek with speeches by the RBA’s Steven’s and FOMC’s Yellen. The technicals will therefore play a more important role for the short term and should we get no further shocks from the equity or commodity markets, then we expect the upward channel to resume. The market opens at support and a great level for exporters to take advantage of; whilst importers with time on their hands can target the previous highs and above.

AUDEUR: The common currency has strengthened continuously over the last few days as the market reassess thoughts of the timing of the next US interest rate hike. EU data helped, however it’s mainly a continuation of nervous fund managers repatriating Euro borrowings out of sales from higher yielding securities that’s doing the damage. The only data of note due this week is Friday’s German GDP, which really shouldn’t change sentiment too much. Instead looking at the charts see no reason why this downward trend shouldn’t continue.

AUDGBP: The Bank of England left interest rates on hold, as expected, but shocked with a unanimous 9-0 vote. Thoughts were for 7-2, following 6 straight months of 8-1, so the result saw the Pound tank. However, that move was soon reversed with Friday’s US jobs data as it was deemed more beneficial to the UK currency than ours. The other main reason for the turnaround being the political uncertainty that abounds with fear of a “Brexit” from the EU, resulting in this pair unable to trend in any firm direction. FYI: A suggested read for those with GBP exposure http://www.bbc.com/news/uk-politics-32810887 . 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.

AUDCHF: The Aussie strengthened against the Swissy all week, as the “Anti Euro” traded in the opposite direction to its neighbouring currency. The only real piece of interesting news was that foreign currency reserves at the SNB rose from 559,548 million francs to 575,420 in January reaching an all-time high and mainly due to the weaker Franc against its major trading partners. The momentum appears strong and we have the potential of another 100 points of upside here.

AUDNZD: A huge drop in NZ Unemployment from 6% to 5.3% negated another hefty fall in the price of dairy and all but erased any near term interest rate cut from the RBNZ. The Tasman Cross has therefore defied overall logic and clawed back NZD 3 cents to print at 3 week highs. With Waitangi Day meaning the banks are closed today and with no data at all until next week, there shouldn’t be any reason to see further gains for the Kiwi here. We’d suggest waiting till mid-week at the earliest before paying those NZ invoices.   

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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