Emigration Market News July

07/07/2010

Australia

June saw a second consecutive net 6 cent monthly gain for £-aud with early July follow through taking the rate back above 1.80 for the first time since February.

The central bank (RBA) kept rates on hold last month following the cumulative 150bp of hikes between last October and the latest rise in May. A small chance of emergency rate cut had actually been built in by the market in response to continued EU worries and the possibility of contagion. RBA remain upbeat on economy but in noting interest rates are ‘around their average levels of the last decade’ rates likely to be held steady at the next meeting on 6th July.

Data wise, GDP slowed to 0.5% in Q1, down from upwardly revised 1.1% in Q4. April retail sales were stronger than expected and the report was boosted by an upward revision to the March data. Employment remains a positive for economy, unemployment down to 5.2% from 5.4% previously. Home loans fell by 1.8% slightly less than consensus but there was a sharp drop in building approvals suggesting rate hikes may be impacting on the housing market. Australian PM Rudd stepped down last month under intense pressure largely in relation to his hard line on mining tax. His successor, Julia Gillard, has already moved to appease miners although her concessions will cost around A$1.5bn. Commodity prices and relatively high interest rates remain A$ supportive but with rates on pause for now, fresh news is required to see new money inflows.

The pound continues to recover from levels in the mid to lower 1.62s seen between March and May which had come close to threatening very long term trendline support at 1.6050. The return to levels around 1.80 represents an approximate 11% gain from recent lows but a band of resistance between 1.8165 and 1.8360 may prove to be a tough nut to crack. Only sustained gains above here opens up the next strong area of resistance at 1.8750/75. For the first time since early 2009, the pound has managed to get a foothold above the 200 day moving average which now sits back at 1.7400. Further supports lie at 1.7175 and 1.6825. Whilst current levels are beginning to see momentum studies a touch over stretched on a daily timeframe, recent developments have been constructive and further gains towards the 1.8165/1.8360 area could well be on the cards.

                                            Australia                              UK
Interest rates                  4.50%                                    0.50%
Unemployment Rate      5.2%                                      7.9%
CPI Inflation                      +2.9% y/y to March 2010   +3.4 y/y to May 2010
GDP                                     0.5% q/q to March 2010    0.3% q/q to March 2010
 
New Zealand

£-nzd gained almost 5 cents last month and now sits around 16 cents, or 8%, above the lows seen in mid May.

The central bank (RBNZ) hiked rates for first time since July ’07, the first change in rates since the cut to 2.5% in April last year. RBNZ see growth as more broad based and particularly strong with Asian trading partners. Exports are expected to contribute towards 3.5% growth in both 2010 and 2011. More rate rises are in the pipeline barring a sharp deterioration in conditions although global conditions will certainly be taken into account in any decision making.

In data releases Q1 GDP came in at 0.6% as expected with Q4 upwardly revised to 0.9% from 0.8%. Retail sales were strong against expectations of a decline in consumption through April. Otherwise, data a little disappointing with business confidence down in May, Q1 manufacturing activity expanding at a slower rate and the May manufacturing index, although still expansionary, also falling back.

Looking at the charts, £-nzd is flirting with the 200 day moving average, currently at 2.1920, for the first time since March last year but is struggling to make headway through the psychological 2.20 level. Even if we do clear this level, a decent area of resistance kicks in around 2.2300/50. Only beyond here can we begin to think about a stronger recovery which would take us initially to 2.2650 then the 2.30 area last seen in February. Support now kicks in at 2.13, 2.09 and 2.0750 should the pound suffer a setback. 

                                            New Zealand                      UK
Interest rates                  2.75%                                   0.50%
Unemployment Rate      6.0%                                     7.9%
CPI Inflation                     +2.0% y/y to March 2010   +3.4 y/y to May 2010
GDP                                    0.6% q/q to March 2010    0.3% q/q to March 2010

Canada

£-cad gained almost 8 cents in June, the strongest monthly gain since the same month last year.

The Bank of Canada raised the overnight rate by 0.25% to 0.5%, the first rise since July 2007 and the first move in rates since April last year. Fallout from recent tension in Europe has been limited to a modest fall in commodity prices. The move was not unexpected and comes on the back of economic activity unfolding as anticipated. This month’s decision by the central bank will almost certainly be decided by the status of global conditions with the local economy performing well and on track.

Data was mixed last month. Q1 GDP came in strong with the annualised rate up to 6.1% from 4.9%. Headline employment change was positive although the increase in private payroll disappointed. Unemployment remained at 8.1%. The housing market was mixed with building permits rising sharply in April while May housing starts undershot expectations. The Ivey Purchasing Managers Index rose to 62.7, its highest level since July 2008. Inflation fell slightly but was a touch above consensus but retail sales were much worse than expected with a 2% fall in April.

Technically, the recovery has picked up pace with a more than 10 cent gain in the last two weeks alone bringing £-cad to its highest level since the end of February. The next major hurdle to clear sits around 1.6225/85 and this zone looks likely to provide stiff resistance. Only sustained gains through here brings 1.6545 then 1.6725 into play. Support now sits at 1.5855, 1.5560/1.5490 and 1.5000.

 

                                            Canada                                UK
Interest rates                  0.5%                                     0.50%
Unemployment Rate      8.1%                                     7.9%
CPI Inflation                     1.4% y/y to May 2010         +3.4 y/y to May 2010
GDP                                    1.5% q/q to March 2010   0.3% q/q to March 2010

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