is4profit Weekly Currency Roundup (31st August 2012)
It’s been the last week of the summer holidays. And what’s been happening in the world of international currency?
The Euro began the week down against the US Dollar after a bigger-than-expected drop in German business figures. Sentiment towards the single currency remained uncertain as the markets await the outcome of a series of key events next month. As the week progressed the Euro rose close to its highest level in eight weeks as speculation rose that the European Central Bank was close to launch its bond buying scheme. The single currency made gains against most of its peers following a good performance by Spanish bond yields on Wednesday.
On Friday the Euro declined for a second day in a row after Spanish Prime Minister Mariano Rajoy said that his government would delay on deciding whether his government will appeal for a sovereign bailout until the conditions are made clear by the European Central Bank. The single currency came close to an eight-week high after Chinese Prime minister Wen Jiabao pledged to consider purchasing European bonds. Italy’s declining borrowing costs also raised optimism over the Euro.
At the start of the week the ‘Greenback’ gained ground against the Euro after the release of data showing that business confidence in Germany dropped for a fourth-straight month. The gains were limited however as optimism over the European Central Banks language over the Euro crisis caused confidence to be bolstered in the single currency to the detriment of the Dollar. Expectations that the Federal Reserve will signal more Quantitative Easing measures also weighed on the Dollar.
Mid-week the ‘Greenback’ fell against the Euro and Japanese Yen following the release of a disappointing US consumer confidence report. Despite improving U.S. job and housing markets, consumer confidence fell to the lowest level it’s been since November 2011. On Friday the US Dollar remained in a holding pattern against a number of its counterparts as the markets await the speech from the Federal Reserve.
The Pound began the week trading down against the US Dollar following last week’s revision of the UK’s GDP figures. The revised data showed that GDP contracted by 0.5% in the second quarter, a figure that was slightly better than the initial reading of a 0.7% contraction. Despite the improved figures it did little to calm investors worried over the state of the UK economy. A combination of weakening exports and a fall in consumer spending also weighed down on the currency.
The Pound fell to a three-week low against the Euro mid-week, after investors bought the single currency in order to meet their end of the month commitments. The poor outlook for the UK economy caused the Pound to struggle against the US Dollar. Confidence continues to slowly ebb away as poor data follows poor data, causing investors to seek safer havens elsewhere. The currency is not likely to reverse its losses this week as traders and investors remain cautious ahead of Friday’s speech by Federal Reserve chairman Ben Bernanke.
The Japanese Yen suffered a week of losses against the US Dollar and other currencies ahead of the Federal Reserve Speech on Friday.
Growing confidence out of Europe saw demand for the safe-haven Yen drop dragging on the currency.
The Australian Dollar began the week trading downwards as the markets weighed the possibility that the US Federal Reserve will implement further quantitative easing measures in its bid to kick-start the US economy. Traders believe that confirmation of further monetary easing would be a lift to the Australian Dollar which is sensitive to global growth expectations. Trading was fairly subdued after many markets in the northern hemisphere slowly returned from their summer holidays.
Mid-week the ‘Aussie’ fell against a basket of currencies after another sharp fall in iron ore prices raised fears that the country’s mining boom is coming to an end. Disappointing construction data also weighed down on the currency. Poor data out of China raised concerns on the stability of the ‘Aussie’ Dollar as the nation’s biggest trade partner continues to post disappointing economic data.
New Zealand Dollar
The ‘Kiwi’ started the week on a downward slip after a dairy exporter cut its 2013 forecast payout to farmers citing a strong currency and falling commodity prices as the cause. Fonterra, the world’s biggest dairy exporter, lowered its forecast for the Farmgate Milk price component to $5.25 and reduced its forecast for the net profit component to a range of 40-to-50 cent. The Auckland-based company said the ‘Kiwi’ Dollar’s strength had eroded recent gains in commodity prices, and while it expects a pick-up in global dairy prices it couldn’t predict the strength of that recovery, leading to a dampening of the New Zealand Dollar.
The currency then fell to a two-and-a-half month low against the Euro after the European Union President Herman Van Rompuy declared the region’s rescue fund is ready for rapid deployment to aid Spain. Falling commodity prices and a strong currency have affected the currency’s strength and it is not expected to reverse its fortunes until after the Federal Reserve speech on Friday.
By the end of the week fears over a weakening China and fading expectations for further US stimulus saw the NZ Dollar stumble to a 1.2% decline. Traders will be looking at China’s manufacturing figures on Saturday with a slump in iron ore prices sparked fears the world’s second-biggest economy will continue to slow in the third quarter.
The ‘Loonie’ began the week trading up as traders focused on the latest data on Canadian economic growth and awaited the US Federal Reserve keynote speech on Friday. The ‘Loonie’ rose against the US Dollar as oil prices rose. The price of Canada’s biggest export of crude oil increased as hurricane Isaac battered the Gulf of Mexico. The storm’s powerful winds affected oil production in the region causing prices to rise elsewhere. Oil also rose following a large fire at a major oil refinery in western Venezuela.
The ‘Loonie’ then slipped against the US Dollar due to poor economic data out of North America and renewed concerns over the Euro crisis. Renewed worries on Europe’s debt crisis let to a broad strengthening of the U.S. Dollar following comments from French and Spanish policymakers and an auction of Italian debt that placed additional pressure on the European Central Bank to enact some form of policy action at its meeting next week.
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