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Aussie and Kiwi Move in Opposing Directions on Contrasting Fundamentals
Written by article default Thursday, 09 June 2011 08:27
Thursday is already shaping up to be a volatile day in the markets with an Aussie jobs report and New Zealand central bank decision inspiring a fresh injection of liquidity. In Australia, the jobs report was a good deal weaker than expected and resulted in a clear bout of underperformance in the Australian Dollar, with the data all but solidifying the most recent RBA more cautious and less hawkish central bank statement.
Meanwhile, things were much better in New Zealand after the RBNZ left rates on hold and came out with an upbeat outlook for the local economy and hawkish stance on monetary policy going forward. Attempts by RBNZ Bollard to downplay the sharp intraday rally in Kiwi after saying that the currency was overvalued, fell on deaf ears with the currency rallying sharply against its commodity cousin on the diverging news. The AUD/NZD cross dropped to fresh multi-day lows below 1.2900.
Elsewhere, on the topic of QE3, Pimco’s Bill Gross was on the wires discounting the likelihood for such policy and said that “it would be difficult [for the Fed] to initiate QE3.” Recent Fed speak certainly reaffirms these prospects with both Fed’s Bullard and Hoenig more focused on the timing of a reversal of monetary policy and removal of accommodation. Instead, we feel that the most likely outcome will be a Federal Reserve which continued to leave rates accommodative and only starts to reverse policy once some form of stability is seen in the US economic recovery.
Moving on, the unresolved debt crisis in Greece and softness in US economic data continue to be major themes weighing on broader risk sentiment, with Wall Street now tracking lower for the 6th consecutive session. The downturn in global equities is starting to take its toll and more insight into the direction of markets will be offered with the Bank of England and European Central Banks rate decisions due up later today. While both central banks are likely to remain on hold, all of the attention will be on Mr. Trichet to see whether he signals a move towards a near-term rate hike. Any use of the word “vigilance” in the post rate decision press conference will be taken as confirmation for an imminent rate hike and likely open the door for additional Euro gains, while lack thereof could open the door for some relative underperformance in the Euro.
Looking ahead to the economic calendar, the only notable release ahead of the BOE and ECB rate decisions is the UK trade balance due at 8:30GMT. Also out in the European session will be Fed Plosser who is slated to speak on the topic of the US economy at 8:00GMT. US equity futures and gold prices are flat while oil tracks moderately higher into European trade.
ECONOMIC CALENDAR
TECHNICAL OUTLOOK
EUR/USD: The market is once again very well bid with the latest gains managing to accelerate beyond resistance in the lower 1.4500’s and towards 1.4700 thus far. From here, we still retain an overall bearish bias, but would look for gains to potentially extend some more towards the 78.6% fib retrace off of the major 1.4940-1.3970 move by 1.4730 before considering the possibility for bearish resumption. Additionally, a daily close back below 1.4450 would now be required to relieve immediate topside pressures.
USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support in the 80.00 area and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported around 80.00 with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming weeks and a break and close back above 81.00 will help to confirm.
GBP/USD: Rallies have been very well capped in the 1.6500’s with the market looking like it wants to carve out a fresh lower top by 1.6550 ahead of the next downside extension below 1.6060. A break back below 1.6285 will reaffirm outlook and accelerate declines, while only back above 1.6550 negates and gives reason for pause.
USD/CHF: The latest minor recovery has proved to be just that, with the market finding a fresh lower top ahead of 0.9000 in favor of a drop to yet another record low below 0.8400. Daily studies are however still looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. Look for a break and close back above 0.8450 to encourage bullish reversal prospects, while a drop below 0.8300 delays.
Written by Joel Kruger, Technical Currency Strategist
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