is4profit Weekly Currency Roundup (5th October 2012)
The Euro is set to face a difficult month in October as the single currency bloc faces a wave of public unrest in austerity-hit nations and the European Central Bank launches its bid to end the Euro crisis.
Key talks in Athens between the embattled Greek government and the nations creditors are expected to show a tougher stance by the Germans. The first of three crucial summits is set to take place on October 18-19th as leaders make or break the success of the ECB’s plan.
The Euro began the week trading up against the Pound as the markets enjoyed a sense of optimism over the draft 2013 budget for Spain.
By Friday the single currency was hovering close to a two-week high against the US currency. The Euro found support after the European Central Bank announced that it was ready to buy bonds of troubled Euro-zone members. ECB president Mario Draghi said that everything is now in place for the bank to start buying bonds of troubled nations such as Spain.
At the start of the week the ‘Greenback’ continued to strengthen against most of its major counterparts as new signs that the global economy is on the brink of entering another slowdown boosted demand for the safe-haven currency.
The US Dollar then strengthened against a basket of currencies as demand for safe haven currencies rose. Weak economic data out of Australia and China deepened the gloom and raised fears over the health of the global economy. The ‘Greenback’ also strengthened to a one and a half week high against the Japanese Yen.
The US Dollar ended the week making gains against many of its major peers after positive jobs data improved sentiment for the US economy, a stark comparison to the dismal jobs figures emerging from the Eurozone.
The Pound fell against the Euro as investors remained cautiously optimistic over Spain’s 2013 draft budget. Anticipation that the country will soon request a bailout proved positive for the single currency as the markets want the European Central Bank to start buying the country’s bonds and lower its borrowing costs.
Sterling then fell to its lowest level in two weeks against the Euro before recovering some ground as the markets await the release of the revised GDP figures for the Eurozone. Yesterday’s announcement by the Bank of England (BoE) to maintain interest rates at the record low of 0.5 per cent caused investors to predict that the bank could implement further monetary stimulus over the next few months. The Pound has also made gains against the US Dollar on the back of the BoE’s decision.
Floundering exports, increasing pessimism among manufacturers and a bold Yen have led many to believe that the Japanese economy will contract through to December.
However, as the Bank of Japan increased its asset-purchase fund in September economists have forecast that the central bank won’t alter current policy for the time being.
The ‘Aussie’ dropped against its 16 major peers following the unexpected decision by the Reserve Bank of Australia, Australia’s Central Bank, to slash interest rates by 25 basis points. The currency dropped to a three week low against its US counterpart as markets were taken by surprise.
The Australian Dollar then extended its losses against its peers as speculation mounted that the Reserve Bank of Australia will have to make further cuts to the countries interest rates. Signs of increasing slowdown in China and the release of data showed that Australia posted its widest trade deficit since 2008. According to the Australian Bureau of Statistics the country’s trade deficit widened to A$2.03billion in August.
By Friday it made a slight recovery due to traders being cautious ahead of the release of the latest US jobs data. If the data proves positive or better than expected then the demand for riskier currencies such as the ‘Aussie’ will improve, if the data disappoints then we can expect to see the currency suffer.
New Zealand Dollar
The ‘Kiwi’ followed its Australian counterpart by weakening against a number of its peers due to the Australian Reserve Bank’s decision to cut interest rates by 25 points.
By the end of the week the New Zealand economy had been bolstered by data indicating that the sales of motor vehicles rose by 14 per cent in September. New car sales rose 17 per cent making 2012 the strongest year in four years for the car industry.
The NZ Dollar rose against the US Dollar and several of its peers after investors were buoyed as demand for riskier assets improved. A major factor for the currencies fortunes will be the outcome of the latest US jobs data, as with the ‘Aussie’ the ‘Kiwi’ could rise or fall depending on the result.
The Canadian Dollar weakened against a basket of currencies as the markets grew increasingly risk averse due to the slowing global economy. The currency extended its losses against its US relation following the release of data showing that US business activity fell for the first time in three years.
CAD then edged higher against its US relation due to a better-than-expected US manufacturing data report. The data dampened concerns that the world is heading towards a new global economic slowdown and spurred demand for riskier currencies including the Canadian Dollar.
On Thursday the ‘Loonie’ fell to its lowest level in a month against its American counterpart as crude oil, the nation’s largest export fell below $90 a barrel and Euro-area services and manufacturing output contracted in September, damping demand for riskier assets.
By Friday it made gains against the US Dollar after it was boosted by a better-than-expected domestic purchasing managers index and improving data out of the United States. Canada and the U.S. both release their key monthly jobs reports for September. In Canada, the consensus is for 10,000 net new jobs and no change to the 7.3 per cent unemployment rate. Negative outcomes to the reports are sure to dent the ‘Loonie’s’ fortunes.
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