Will Greece stay or will they go?

Brief Summary:

• AUD below parity for the first time in 2012. This is the lowest the AUD has been since December 2011.
• Euro woes continue weakening Euro to all-time lows.
• US data slightly worse but average data in Australia halts movement.

The AUD has fallen heavily against the majors over the past week, with a 2.27% fall against the USD (4.9% since 1st May), 0.4% against the EUR (4.9% since 1st May) and 1.06% (3.36% since 1st May) against the GBP. The fall in interest rates and the fragile European political situation has seen the AUD fall below parity against the USD.
Small slivers of confidence did shine through the RBA minutes which announced moderate growth in the economy, highlighted by better than expected employment data, taking the unemployment rate to around 5.25%. The inflation rate was slightly lower than expected which has coupled international turmoil to cause market falls.

Please see specific commentary for your relevant currency pairs below.

AUDUSD

• US retail sales were slightly worse than expected overnight (0.0% < 0.1%) coupled with Core CPI data which came out close to expectations (0.1% < 0.2%) has led to local losses in equities but a strengthening in the USD.

• The AUD has fallen below parity for the first time since December 2011 falling nearly 5 cents since last week. This is predominately due to the Reserve Bank’s decision to drop interest rates by 50 b.p and Greece’s inability to solve their political dramas and form a coalition government.

• A new 2012 low for the AUD against the USD as reached this week 0.9906, the dollar looks to be sliding further if conditions locally and internationally do not begin to improve.

AUDEUR

• AUD has continued a steady fall against the EUR since the beginning of May leading to a weekly low of 0.7740 overnight.

• Greeks are expected to be back to the polls next month after post-election attempts to form a ruling coalition in Athens broke down yesterday after nine days. This may give rise to anti-bailout leadership that would tear up the conditions attached to 240 billion euros ($307 billion) of aid agreed to under the previous government.

• Euro worries continue with the thoughts that Greece may ultimately leave the 17-nation Euro adding to the crumbling investor confidence in the area.

• Spain’s top 5 lenders set aside almost 15 Billion Euros ($19.4 Billion) in provisions to cover risky property deals. This was after Spain’s 4th largest bank, Bankia, was bailed out late last week. This is the country’s fourth attempt to deal with a 2008 property market crash which has raised fears the country may need further international stimulus to aid its economic recovery.

AUDGBP

• Another all-time low for 2012 was reached this week with the GBP when it fell to 0.6181 yesterday. The rate has recovered slightly but remains 1% lower from its position last week.

• UK Trade Deficit stayed largely unchanged in March despite a rebound in exports to countries outside the European Union.

• The Bank of England tonight will release its quarterly inflation report, highlighting inflation figures and unemployment change. Also released tonight is UK’s Claimant Count Change (Change in the number of people claiming unemployment-related benefits during the previous month) which is expected to be slightly higher than last month’s figure.

AUDNZD

• NZ Core Retail Sales were down from the previous 2 quarters following the Rugby World Cup and the influx of 133,200 visitors to NZ. Although in the longer term the trend shows both sales volumes and values have flattened after a period of strong increases but core retail sales volumes and values have fallen.

• The Producer Price Index, being the indicator of consumer inflation, will be released this afternoon which is expected to remain unchanged from last month.

• The AUD is slightly up for the week against the NZD (0.5% approx), essentially continuing the trend from last week where both currencies have fallen against the majors due to international turmoil, but the AUD has weathered the storm slightly better than the NZD.

Cat in the Bag: Repercussions of Greece falling out of the Euro

• If Greece leaves the Euro this will cause a huge movement in markets around the world

• European banks hold significant Greek debt on their balance sheets denominated in Euro’s. If Greece leaves and goes back to the Drachma, the currency will devalue significantly, meaning a big hole in those banks balance sheets

• Loss of confidence in Greece will spill into other countries; will your money be safe in a Spanish or Italian Bank?

• Stock markets around the world will plummet

• AUD, NZD will be sold off heavily, along with the EUR as confidence in the Euro drops, and investors scramble to move their money out of the Eurozone.

• The question is; has Germany had enough of propping up other countries with hard earned German Tax payer money?

Ray Ridgeway

If you would like to discuss your foreign exchange requirements, please call 1800 701 540 or email australia@worldfirst.com for a live exchange quote.

*Rates are dependent on the amount you transact Any rates given are “interbank” i.e. for amounts of A$100 million and thus are not indicative of rates offered by World First for smaller amounts.

Please click here if you would like to stop receiving our email updates.
World First Pty Ltd is regulated in Australia by ASIC (AFS Licence number 331945). ACN 132 368 971
Member of Financial Ombudsman Service (membership number 134005)

European Bears Tearing at World Economic Recovery

Brief Summary:

• AUD continues to flounder after 50 b.p. fall in interest rates.
• Elections in France and Greece slam Euro recovery and investor confidence.
• US recovery continues, better unemployment and housing data leads the way.

The AUD has fallen heavily against most of the majors over the past week, with a 3% fall against the USD, 1.5% against the EUR and 2.3% against the GBP. Weak trade balance figures in Australia coupled with the fragile political situation in Greece has crippled investor confidence, this has seen the AUD break previously accepted resistance levels which in turn is causing the flash volatility we have been witnessing.
Please see specific commentary for your relevant currency pairs below.

AUDUSD

• The AUD has fallen nearly 8 cents since late Feb as the Australian two speed economy has created a negative flux in investor confidence. The Reserve Bank’s decision to drop interest rates by 50 b.p. highlights increasing fears that economic growth is slowing down and in some areas stalling, supporting this lack of growth was the worse than expected Trade Balance figures released yesterday (-1.59B > -1.38).
• US employment data continues to act as the shining light for the US economic recovery, March job openings figures out last week were the strongest the US has seen since 2008 and the unemployment rate has dropped to 8.1%.
• Woes in Europe are crossing the Atlantic and we have seen the harshest falls in the AUD when both Europe and the US have had worse than expected data released, highlighting the cautious attitude in US investors.

AUDEUR

• EUR has fallen against the USD for the past 8 days straight.
• The European cash rate stayed at 1% (an all time low) last Thursday, this was released right after the PPI m/m figure for the region which came out worse than expected (0.5% > 0.6%).
• Francois Hollande on Monday was voted in as France’s new President. One of the fundamental aspects of his presidential campaign was his continual opposition against European austerity measures as a way to stem the European debt crisis. Since his victory he has not voiced directly how France’s fiscal policy will change but it will no doubt put more pressure on the European political landscape and therefore economic recovery.
• Greece over the weekend also held elections; the result has been a political stalemate with no party winning enough of the vote to form government. The big winners in the election were ‘anti-bailout’ minor parties from the centre left. This has led to European leaders voicing concerns over the real possibility that Greece may leave the EUR adding to the crumbling investor confidence in the area.

AUDGBP

• The biggest mover against the AUD this year for the majors (a 9% fall since February). The GBP has been relatively quiet this week.
• Slightly worse than expected Services PMI data out last week (53.3 <54.4) had little effect on the currency as the AUD tumbled on interest rate and trade balance announcements.
• Tonight the official cash rate is expected to remain at .5% and figures for manufacturing production m/m are expected to be slightly better than last month.

AUDNZD

• The AUD is slightly up for the week against the NZD (1% approx), and it seems both currencies have had a torrid time citing international uncertainty and bad local economic data as the key reasons for the falls.
• NZ Employment change q/q came out worse than expected (0.4% < 0.5%), this figure was followed by a rise in the unemployment rate (6.7% > 6.3%).
• The NZ Reserve Bank governor Alan Bollard stated Europe was the biggest external blight on the NZ economy “The European situation remains fragile…little has been done to address fiscal imbalances and competitiveness issues” which is creating the uncertainty in the exchange rates.

 Patrick Liddy

If you would like to discuss your foreign exchange requirements, please call 1800 701 540 or email australia@worldfirst.com for a live exchange quote.

*Rates are dependent on the amount you transact Any rates given are “interbank” i.e. for amounts of A$100 million and thus are not indicative of rates offered by World First for smaller amounts.

Please click here if you would like to stop receiving our email updates.
World First Pty Ltd is regulated in Australia by ASIC (AFS Licence number 331945). ACN 132 368 971
Member of Financial Ombudsman Service (membership number 134005)

Please click here if you would like to stop receiving our email updates

Matthew Dawe

Corporate Foreign Exchange Dealer

Please click here if you would like to stop receiving our email updates

Matthew Dawe

Corporate Foreign Exchange Dealer

Investors shift their money away from Australia’s commodity currency

In the past week (15th – 22nd March 2012) we have seen the AUD weaken against most pairs:

• AUDUSD: the market has seen the AUDUSD hit a high of 1.0637, with recent swings shifting the pair down to a 9 week low of 1.0334; about ¾% lower than the 200-day moving average.
• AUDEUR: the first half of this week saw the AUDEUR range trade between 0.8062 and 0.8072, with recent data coupled with economic sentiment shifting it into the mid 0.78’s; a rate we have not since December last year.

What were the major precursors for this shift in the AUD?

• The USD strengthened as renewed worries about the Chinese growth (the horrific trade balance and CPI figures two weeks ago, together with the poor manufacturing PMI we saw yesterday) saw investors dump commodity currencies.
• US Treasury yields have risen on the back of growing optimism about the US economic recovery (lower unemployment claims, a major increase in TIC purchases, and a slight increase in their Manufacturing index and building permits), making the USD less attractive as a funding currency for carry trade.
• Since Greece has been relegated to the sidelines, investors appeared to have latched onto China, still not convinced it can engineer a soft economic recovery. Low Chinese demand for Australia’s iron ore and a hike in energy prices have caused a ‘haemorrhaged’ affect for Australian output.

Upcoming Data

• United States: New home sales, consumer confidence, and durable goods orders.
• Asia: Australian RBA financial stability review and Japanese retail sales,
• Europe: German IFO business climate, German unemployment change, and EU M3 money supply.

World First Pty Ltd is regulated in Australia by ASIC (AFS Licence number 331945). ACN 132 368 971

Member of Financial Ombudsman Service (membership number 134005)

Matthew Dawe

Corporate Foreign Exchange Dealer

World First Pty Ltd holds an Australian Financial Services Licence – License Number 33194 – under the Corporations Act 2001 which authorises the Company to provide financial services in relation to foreign exchange contracts, derivatives and non-cash payments facilities to persons within Australia.This email is intended only for the addressee named above. As this e-mail may contain confidential or privileged information, if you are not the named addressee, you are not authorised to retain, read, copy or disseminate this message or any part of it.

World First Pty Ltd is regulated in Australia by ASIC (AFS Licence number 331945). ACN 132 368 971

Member of Financial Ombudsman Service (membership number 134005)

Matthew Dawe

Corporate Foreign Exchange Dealer

World First Pty Ltd holds an Australian Financial Services Licence – License Number 33194 – under the Corporations Act 2001 which authorises the Company to provide financial services in relation to foreign exchange contracts, derivatives and non-cash payments facilities to persons within Australia.This email is intended only for the addressee named above. As this e-mail may contain confidential or privileged information, if you are not the named addressee, you are not authorised to retain, read, copy or disseminate this message or any part of it.

World First Pty Ltd is regulated in Australia by ASIC (AFS Licence number 331945). ACN 132 368 971

Member of Financial Ombudsman Service (membership number 134005)

World First Pty Ltd is regulated in Australia by ASIC (AFS Licence number 331945). ACN 132 368 971

Member of Financial Ombudsman Service (membership number 134005)

AUD Under pressure as Europe struggles