Australian FOREX Weekly Outlook 28/04/2008

Another volatile week saw record highs for Euro and Aussie dollar before US surged following dampened Euro outlook and stabilizing equity markets

28/04/08

last week’s currency trading review

The Dollar was again volatile last week, beginning the week softly before gathering steam as speculation grows around the notion the Fed is nearing the end of cutting rates. Fed officials avoided the topic of monetary policy through the week and focused more on the need for transparency in the financial system to allow the crisis to be fixed. New Home Sales decreased to 526k, down from the forecasted 580k. Durable Goods Orders came in slightly above the predicted -1.1%. Whilst jobless claims hit two-month lows of 342k. 73% of the 263 firms who announced quarterly earnings results this week either matched or bettered expectations which really aided the dollar strength. Most notably, Citigroup announced a loss of US$5bn, half of the forecasted US$10bn loss. These results, combined with the growing belief the Fed will cease cutting rates after its next meeting really strengthened the dollar against the majors. The Euro fluctuated immensely through the week as conflicting commentary and poorer than expected data results led to sharp movements. ECB officials began the week hawkish, with Liebscher talking about rising energy prices as the cause of increased wage demands and prices, which then saw the Euro crack the 1.6000 level for the very first time. The Euro then faced a large sell-off as ECB president Trichet came out and stated strength in the Euro currency is not good for the Euro economy. PMI Manufacturing came in at 50.8, slightly above the key 50 expansion level, however down on the forecasted 51.7 level. Combined with the unexpected drop in German Business Index to 102.4 for April from 104.8 previously, it signalled to the market the Euro may be topping out and economic growth will slow throughout the year. The EURUSD opened at 1.5801 and closed at 1.5605. The Japanese Yen weakened through the week as strength in the U.S dollar and equity markets prompted confidence in the carry trades. The big piece of data to come out from Japan was the Nationwide CPI figure of 1.2% coming in as predicted, up from 1.0% for Q4. The USDJPY opened at 103.86 and closed in New York at 104.46. The GBP also fluctuated through the week as the BoE announced a plan to ease the liquidity problems facing UK financial lenders by swapping 50 billion pounds of mortgage back securities with government treasury bonds. The Minutes from the BoE’s most recent rate meeting were released which surprised the market as a 3 way split in voting resulted with a 6-1-2 vote between 25bps cut, 50bps cut and no change. GDP for Q1 came in as expected at 0.4%, slightly down from 0.6% for Q4. Year-on-year GDP came in at 2.5%, slightly below expectations of 2.6% and down on the previous result of 2.8%. Retail sales results were also trimmed 0.4% to 4.6%. The GBP opened at 1.9941 and closed in New York at 1.9889. The AUD reached 24-year highs on the back of stronger than expected CPI figures of 1.3% m/m and 4.2% y/y, higher than the forecasted 1.0% m/m and 4.0% y/y. Despite this strong result it is still widely expected the RBA will maintain rates at their current level of 7.25%. Later in the week, U.S strength and lower commodity prices saw the Aussie dollar pair its gains and close at 0.9319 after opening the week at 0.9337. The RBNZ maintained rates at 8.25% after its meeting last week, whilst the CAD was affected after the BoC cut rates by 50bps to 3.0% last week.

The forex trading week preview

In the States continued volatility is expected as a big week of data releases lies ahead. The major announcement for the week is the Interest Rate announcement on Wednesday with expectations of a 25bps cut to 2.0%. The Unemployment Rate for April is announced on Friday with forecasts of an increase from 5.1% in March to 5.3%. Nonfarm Payrolls are also released on Friday with suggestions of -100k, up from -80k for March. Chicago’s PMI for April is out on Wednesday with expectations of a level at 47.5, down from 48.2 for March. Finally, Q1 GDP is to be released on Wednesday with forecasts of no growth for Q1, down from 0.6% for Q4. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone Germany’s Consumer Confidence is announced on Monday for the month of May with forecasts of 4.4, down from 4.6 for April. Germany’s CPI is also released for April with expectations of no change from March’s level of 3.1%. Euro Zone’s April Consumer Confidence is also released on Wednesday with predictions of -14, up from -12 for March. Euro’s CPI is also announced on Wednesday with suggestions of a downgrade from 3.6% in March to 3.5% for April. Later in the week, PMI Manufacturing for April is out with forecasts of a level at 50.8, down from 52 for March. We will provide our previews and reviews of these data releases in the daily summary.

In the UK Nationwide House Prices for April is announced on Monday with predictions of a further decrease of -0.7%, worse than the -0.6% for March. March’s Mortgage Approvals is also announced on Tuesday with suggestions of a drop from 73k for February, down to 69k. BoE Governor King speaks in Parliament on Tuesday as does BoE’s Blanchflower who was the only BoE official who voted for a 50bps rate cut at their last meeting, so expect a rather dovish outlook. On Thursday, PMI Manufacturing is announced for April and it is forecast that it will drop to 50.9, down from 51.3 in March, but still remains above that key 50 expansion level. We will provide our previews and reviews of these data releases in the daily summary.

In Japan the Unemployment rate for March is announced on Wednesday with predictions of no change from their current levels of 3.9%. Household Spending is also out on Wednesday for the month of March with a growth of 0.6% predicted, up from 0% for February. Wednesday also sees the BoJ target rate announcement with thoughts of no change from their current levels of 0.5%. We will provide our previews and reviews of these data releases in the daily summary.

In Australia the NAB Business Confidence for Q1 is announced on Tuesday. No forecast has been made, however Q4 results saw a level of 6. Private Sector Credit for AMrch is released on Wednesday with no change expected from February’s level of 0.7%. Finally, on Friday, Retail Sales figures for March are announced with forecasts of a contraction to -0.3%, down from February’s level of -0.1%. We will provide our previews and reviews of these data releases in the daily summary.

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