Tag Archives: Australia

EUR & AUD Spike Higher

Today as expected, both the Bank of England and the European Central Bank kept their key interest rates on hold at 0.50% and 0.25% respectively. The Bank of England also kept its Quantitative Easing Asset Purchase Facility on hold at £375bn.

In the following ECB press conference, ECB President Mario Draghi surprised the markets with his upbeat comments regarding Eurozone inflation and growth. Inflation is expected to climb from February’s 0.8% to 1.0% by the end of the year, 1.3% in 2015 and 1.7% in Q4 of 2016. Growth forecast was revised up to 1.2% in 2014. For 2015, growth is projected to be 1.5% and 1.8% for 2016.

As a result the Euro has made notable gains against the US Dollar and the British Pound. EURUSD appreciated from a daily low of 1.3722, hitting a high of 1.3858, and currently trades at 1.3843 (0.81%). Whilst EURGBP appreciated from 0.8207 (1.2185), to 0.8287 (1.2067), and currently trades at 0.8274 (+0.76%).

Elsewhere, the Australian dollar appreciated sharply today on better than expected economic data. Australian retail sales rose by 1.2% month on month and the trade surplus widened to AUD 1.43bn.

As a result AUDUSD appreciated from 0.8973 to a high of 0.9091 and the Pound depreciated by 2 cents against the Australian Dollar from 1.8624 to a low of 1.8407.

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Currency Update

Positive UK data released this morning fuelled a moderate rally in the Pound, albeit a very short lived one. UK Markit Services PMI showed a substantial rise to 51.5 in January and caused Cable to spike upwards immediately following the release before dropping back off to where it is now, trading flat for the day at 1.5750. Similarly GBP/EUR rose slightly following the UK PMI figures, however the pair has now weakened and Sterling’s decline has seemingly resumed, with the pair now trading at 1.1630.

The Euro has strengthened against both the Pound and the Dollar this morning following the release of PMI figures. Whilst UK PMI data showed a positive increase, Markit Services PMI results for Spain, Germany and the Euro Zone were also positive. However, this data was soon contradicted by EU Retail Sales figures which showed sales were down -3.4% in December. As market participants digest the figures, it would appear that they have not yet decided that Sterling is oversold or the Euro has appreciated too far. However, one must recall the comments made several weeks ago by Luxembourg Prime Minister Jean-Claude Juncker, who stated that the Euro is ‘dangerously high’ – if that observation was correct then, the Euro must now be in an extremely precarious situation.

Elsewhere this morning we saw the Reserve Bank of Australia commit to keeping interest rates at 3.0%. The Aussie Dollar dropped off against Sterling and the Greenback following the data release as RBA Governor Glenn Stevens gave an explicit indication that rates could well go lower in the future. Despite these comments, the outlook for the Australian economy would appear to be consistently improving as China’s rebounding growth continues to be confirmed. This morning the HSBC China Services PMI hit 54.0, up from 51.7 the previous month. GBPAUD currently trades at 1.5140.

The Runaway Euro Train

The Euro keeps going from strength to strength. Despite a small setback yesterday following Luxembourg Prime Minister Jean-Claude Juncker’s comments that the Euro is “dangerously high”, the common currency returned to its advance today. GBP/EUR had managed to hold at 1.2010 earlier in the week and began to recover slightly yesterday, however this morning the pair broke below this level hitting a daily low of 1.1980. Following the bullish comments by Mario Draghi last week regarding the Eurozone, a drop in Spain’s borrowing costs this morning after the sale of 4.5 billion Euro bonds further catalysed the Euros strengthening. This has also led to EUR/USD pushing back up to 1.3350+ this morning, heading back towards the heady heights of 1.34 which we last saw on Monday, when a new 11 month high was established.

There is very little economic data out this morning other than employment figures coming out of Australia. The Australian Employment Change for December was recorded at -5.5K, a substantial decrease from the previous month and well below market expectations of 2.3K. This led to the Aussie Dollar dropping off against the Yen and AUD/USD also dropped off, recording a daily low of 1.0493 immediately following the data release.

Markets will have to wait until this afternoon for the next instalment of economic data, in which we will see figures from the US regarding Housing Starts, Building Permits and Initial Jobless Claims. Whilst the data this afternoon could well stoke some movement in the markets, it is likely that any substantial moves will be delayed until after crucial data is released in China tomorrow. In the early hours of tomorrow morning Chinese GDP, Industrial Production and Retail Sales figures will be released and could spark significant market movement.

Mark Webster

Decisions, Decisions, Decisions

Markets are relatively flat this morning as participants wait and see what will be the outcome of two major pieces of economic data due out this afternoon. First we will see the Bank of England release its decision at 12:00 GMT on whether or not to alter interest rates or their asset purchase program. Whilst both of these are expected to remain as they are, market participants look keen to wait until these decisions are confirmed before taking a position within the markets.

A little later this afternoon we will see an ECB Monetary Policy Statement and press conference at 13:30 GMT. As in the UK, the ECB are expected to keep interest rates on hold at their record low of 0.75%. Whilst the Eurozone appears to have been stabilizing recently, there has however been no spectacular data release to suggest that a rate change at present would be warranted.

Elsewhere today we have seen commodity currencies react favourably to the positive data released in China this morning. Figures show that the Chinese Trade Balance rose substantially in December, reaching 31.6B for the month, well above market expectations of 19.7B. The Australian Dollar rose to its highest point against the Japanese Yen in four years following the data release, and is currently trading at AUD/JPY 93.23. The Aussie Dollar was also aided by Japanese Prime Minister Shinzo Abe, who has called for the Bank of Japan to raise inflation targets to 2%, weakening the Yen right across the board.

Mark Webster

Go Euro, Go

Today we will see European Finance ministers meet once again to further sure up the current deal regarding Greece. Discussion is likely to focus on the proposed supervisory role for the European Central Bank. Whilst in theory the majority of European finance ministers would be in favour of such a position, it is when it comes to the ironing out of the fine details that there is the potential for disagreement. Notably, leaders of countries outside of the Eurozone have expressed concern that they could be treated as second tier members of the new supervisor, a situation that would clearly be untenable.

Despite the meetings taking place in Europe today and across the pond regarding the fiscal cliff, the Euro has continued to strengthen against Sterling and the Dollar on the back of the Greek debt agreement reached last week. The Euro has risen against both the Pound and Dollar today, with EUR/GBP hitting 0.8128 (GBP/EUR 1.23) and EUR/USD rising to 1.3107. Sterling has also risen against the Dollar today, hitting the key level of resistance at 1.6124 that was mentioned in yesterday’s blog. Cable is continuing to test this level and should it breakthrough, we could well see 1.63 targeted next, however substantial movement will be dependent on the progress of talks regarding the fiscal cliff.

Elsewhere the Reserve Bank of Australia has cut interest rates for the second time in three months. Interest rates have been cut to 3%, equal to the half century low set in 2009, as the Australian economy continues to battle with falling commodity prices and a strong currency. Despite the interest rate drop early this morning, the Aussie Dollar has fared well, buoyed by the positive Chinese data released yesterday and also potentially because of the fact that some market participants felt the rate could have been cut even further. GBP/AUD is currently trading at a daily low of 1.5373.

Mark Webster

Interest Rates

Today (07/04/11) as expected the European Central Bank (ECB) has raised its benchmark interest rate by 0.25% to 1.25%, the first such increase since July 2008. The Bank of England has kept interest rates on hold for the 25th month at their historic low of 0.5% and the Bank’s Quantitative Easing Asset Purchase Programme remains at £200bn.

 The focus will now shift to the release of the minutes (due 20th April) of today’s BoE Monetary Policy Committee (MPC) meeting to see if any further MPC members have been swayed to the rate hike camp. At the previous meeting in March, six members voted to keep rates on hold whilst three members voted for an increase in interest rates. The conflict between above target inflation coupled with weak economic growth making the Bank’s decision difficult. The market will also seek further clarity on the future direction of ECB interest rates as there had been some suggestions that the hike today may be the first of a gradual increase in ECB interest rates.

Typically, as a central bank increases interest rates their currency will appreciate as global investors seek a higher yielding currency. The widening interest rate differential between the BoE and ECB has been a major contributing factor to Sterling’s relative weakness against the Euro despite the ongoing European sovereign debt crisis.

Comparative World Interest Rates

Bank of Japan: 0.1%

Federal Reserve (USA): 0.25%

Swiss National Bank: 0.25%

Bank of England: 0.5%

Bank of Canada: 1%

European Central Bank: 1.25%

The Reserve Bank of Australia: 4.75%

People’s Bank of China: 6.06%

Brazil: 11.75%

Currency Update – Sterling pressured

Sterling has started March under significant pressure. Monday morning saw a dramatic fall in the value of Sterling with the Pound falling as low as 1.0930 against the Euro and 1.4780 against the US Dollar. There are currently a number of factors contributing to Sterling’s sharp fall in value.

Firstly, the latest opinion polls are suggesting that following the UK general election, it is likely that we could see a hung parliament with no single party holding a workable majority. This political uncertainty has troubled investors as they are concerned that any new government may not be able to implement the measures needed to cut UK debt and revive the economy.

Secondly, the Bank of England has hinted recently that we could see further expansion of its asset purchase scheme known as quantitative easing (QE). Any increase in QE would likely depreciate Sterling further.

Finally, Prudential’s $35.5B bid for the Asian life insurance unit of AIG has caused large flows out of Sterling into the US Dollar.

Following Monday’s sharp falls, the pound has recovered some of its losses. This morning, the release of the latest Purchasing Manager Index (PMI) suggested that the UK service sector is recovering at a stronger rate than many analysts had expected. This has helped push Sterling back above the psychological level of 1.50 against the US Dollar and above1.10 against the Euro.

In the Eurozone, the Greek government has approved a fresh austerity package of tax rises and spending cuts worth €4.8B. This has gone a small way to help convince financial markets that Greece can pay off its massive debts. The Euro has risen against the US Dollar and currently trades above 1.36.

Elsewhere, The Reserve Bank of Australia has hiked their cash interest rate by 0.25% to 4%. The Bank of Canada left rates on hold at 0.25%. However, the Bank of Canada’s accompanying statement showed that the Bank was more upbeat on the economic outlook. This has forced Sterling to a low of 1.6491 against the Australian Dollar and 1.5387 against the Canadian Dollar.

Both the Bank of England and the European Central bank meet tomorrow at 12:00 and 12:45 respectively. The markets will eagerly await any announcement from the Bank of England regarding QE and the European Central Bank’s latest economic forecasts.

With all the uncertainty regarding the general election, the Bank of England’s QE programme and the UK’s ability to tackle the deficit, it is likely that Sterling will remain under pressure for some time.

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Currency News

Last week the currency markets were firmly focused on the Euro with the fiscal problems of Greece and also Spain and Portugal taking the headlines. Speculation built throughout the week that the other European Monetary Union states, led by Germany, would come to Greece’s aid. However, markets were clearly disappointed that whilst a rescue package was agreed in principle, European leaders failed to set out a comprehensive package.

The Euro was also pressured following the release of disappointing Eurozone GDP data. Total Eurozone 4th quarter 2009 GDP expanded by a mere 0.1%, the market had been expecting growth of 0.3%. Noticeably, German GDP (the largest European economy) failed to expand at all, whilst Italian GDP slipped back into contraction. Spain, hit by a housing market collapse and official unemployment greater than 20% remained in recession.

As a result, the single currency fell to a low of 1.3531 against the US Dollar, its lowest level since May 2009. The US Dollar, viewed as a safe haven, appreciated across the board as investors took flight from risk as stocks and gold prices tumbled. The Pound fell to 1.5534 against the US Dollar but rose past 1.15 against the Euro.

 In the UK the Bank of England released its Quarterly Inflation Report. The report was markedly pessimistic about the UK economy, revising its growth forecasts down. UK Interest rates are expected to stay low for a protracted period of time as growth remains weak and inflation is expected to fall back below the 2% target after initially spiking higher to 3%. Moreover, the Bank of England failed to rule out the possibility of extending its asset purchase scheme know as Quantitative Easing. Consequently, the Pound is expected to stay weak for some time. However, some gains could be made against the Euro, depending on how the Greek bailout develops. Sterling’s 25% depreciation should eventually help the UK economy grow as our exports become more competitive.

 Elsewhere, the Australian Dollar rallied following better than expected employment data with GBPAUD falling to 1.76. In China concerns over potential asset bubbles, led officials to order banks to increase their levels of reserves in a bid to cool the amount of lending.