NEWS / Foreign Exchange

AUD hits 10 year high

NZD holds 0.7100 despite weak GDP

NZD/USD opened around 0.7140 on Friday and posted the local session high of 0.7158 before the much awaited Q4 GDP number. The data was weaker than expected and the NZD immediately dropped to 0.7130 and buyers started emerging around this level. However this was not enough to support the NZD and it moved to the day??™s lows of 0.7115 before it recovered to spend the remainder of the day trading around 0.7135 ??“ 0.7145. NZD/USD dipped towards the lows early on in overnight trading but weakness in the broad USD saw the currency rally strongly to post an intraday high of 0.7188. The spike was short lived however and we open around 0.7150 this morning.

AUD hits 10 year high

The AUD was very much sidelined during Friday??™s local session as the markets attention was focussed on the NZD. AUD/USD traded a 27 point range with no Australian data to help provide any direction. Month end saw plenty of buying interest of AUD/USD but it took the offshore session to really ignite the currency. Like the NZD, the AUD shot higher on a weaker USD to touch a high of 0.8127 ??“ a level not seen since December 1996. Once up at these levels the AUD found support around 0.8100 but sellers soon pushed the currency from its highs back towards 0.8090 where it opens this morning.

Geo political risks weaken USD

The USD initially firmed on Friday to a high of around JPY 118.40 on the back of higher than expected US core inflation and a strong Midwest manufacturing survey. It then shed gains after the US government announced it will impose duties on imports of coated paper from China, increasing fears of ???protectionism??? between the two countries. The USD further suffered on unsubstantiated rumours that US citizens had been advised to leave Bahrain. Concerns over the news saw broad gains by all the majors overnight with the euro up 0.2% through the 1.3350 level, and GBP pushing through 1.9700.

US core PCE price index rose a stronger than expected 0.3% in Feb to push the annual rate up to the 2.4% peak recorded in Sep 2006. Only downward revisions to the index in late 2006 prevented a new 2.5% peak in the Fed??™s preferred inflation measure. The last time the annual core PCE deflator exceeded 2.4% was in April 1995. This data confirms the Fed??™s view that inflation is still a major risk.

US personal incomes rose 0.6% in February, as did consumer spending. Both figures were double estimates for growth of 0.3%. During the past year, personal incomes have increased by 5.3% with wages and salaries up 4.4% the past 12-months.

US construction spending increased 0.3% in Feb, which easily surpassed estimates for a decline of 0.4%. Though residential construction continued to fall, non-residential and public construction saw gains. Overall, construction outlays are down 2.4% in the past year, due to the weakness in the housing sector.

US Mar Chicago PMI caught markets off guard as the index soared to its highest level since April 2005. The PMI came in at 61.7, up substantially from 47.9 the month prior. The index is now well above the important 50 threshold and suggests that manufacturing conditions in the Midwest have strengthened.

US Michigan consumer sentiment fell to 88.4 from 88.8 in the March final survey. After hitting a multiyear high in Jan, the index has fallen almost ten points and sits at its lowest level since Sep 2006.

Eurozone CPI flash estimate for March came in at 1.9%, up from 1.8% previously and indicating that inflation is on the rise.

Eurozone unemployment fell in Feb to 7.3% (from 7.4% previously). Combined with strong business and consumer confidence data released for March, this raises the probability of another interest rate hike in June by the ECB.

German retail sales rebounded from their tax-induced January slump, rising 0.9% in Feb. The rise was bang on expectations.

UK GfK consumer confidence fell in Feb to -8, from -7 in Jan. The fall was driven by more pessimistic outlook for the economy, although there was also a decline in consumers' willingness to buy big ticket items.

Canadian GDP expanded 0.1% in Jan, slightly softer than the 0.2% expected. This was the fourth consecutive monthly increase in GDP.