Oz Forex Foreign Exchange | Weekly Market WatchLast Week Recap
The Australian Dollar spent most of last week trading within a broad range of 0.6285 and 0.6520 against the U.S Dollar. On Tuesday, for the first time since August 2008, the Reserve Bank of Australia left the official cash rate unchanged at 3.25 per cent. After the announcement the Aussie rallied locally and continued the theme offshore reaching 0.6243 against the Greenback. Despite figures released mid-week showing the Australian economy slid backwards for the first time in 8 years the Aussie posted a high of 0.6520 as global equities, base metals and crude oil all stages a recovery. Unfortunately, the local unit failed to hold on to these gains as profit-takers moved in after a weaker-than-expected fall in New Home Building Approvals. There are still clear signs of strong technical resistance at 0.6550.
The New Zealand Dollar hit a six-and-a-half year low last week of 0.4906 against the Big Dollar as global equity markets slumped and traders moved into US treasuries. In the absence of local economic data the Kiwi took its direction from offshore events and moved back above US$50c momentarily once demand for the safe-haven Greenback diminished. The kiwi looks to be capped around the US51 cent area.
The Pound Sterling was weaker at 1.3956 against the US Dollar last week in anticipation of the Bank of England delivering another interest rate cut, and as expected they did. The official cash rate now stands at 0.5 per cent. The Central Bank also said it will pump money into the British economy by purchasing up to 150 billion pounds in government and corporate bonds. The sterling managed to hold above 1.4000 as London’s FTSE 100 recovered on the back of a rise in energy stocks.
For the first time since 1997 the Dow Jones fell below 7,000 along with London and German equity markets both posting losses. EUR/USD dipped to its lowest level since Feb 17 as Europe’s Central Bank lowered its lending rate from 2 per cent to 1.5 per cent and signalled there could be more cuts to come. In other news, the dollar index DXY (a gauge of the greenback's strength against a basket of major currencies) rose to a three-year high above 89.00 as poor financial news led by insurer AIGs record loss increased concern about the global credit crisis, boosting the dollars safe-haven allure.
Meanwhile, US employers eliminated 651,000 jobs in the month of February to post an unemployment rate of 8.1 per cent from 7.6 per cent in January. Policy-makers may need to expand government aid to the ailing financial sector after comments by US Federal reserve Chairman Ben Bernanke who said the banking system is not yet stabilized.
The A$ closed lower last week at 0.6400. NZ$ also closed lower at 0.4972. The Euro opened last week at 1.2630 and finished steady. The GBP weakened from 1.4294 to 1.4074. US$/JPY continued its recent strength to finish the week at 98.00.
The Week Ahead
USD: The data front in the early part the US week is fairly light with no significant releases due for release until mid to late week. No doubt the Dollar will take direction initially from offshore events and announcements. There are some announcements that are considered low key which starts on Tuesday with US Wholesale Inventories data for the month of January. All eyes this week will be on Friday when we see the release of the University of Michigan Consumer Confidence Survey. This survey tends to move markets on release. Also released on Friday is US Trade Balance data for the Month of January and US Import Price Index for the month of February.
AUD: This week all starts with the release on Tuesday NAB Business Confidence for the month of February. This survey is a measure of the current state of the business sector in Australia. Also released on Tuesday is the ANZ Job Advertisements for the month of February. This data is a monthly report measuring the number of jobs advertised in the major daily newspapers and internet sites in major Australian cities. On Wednesday is the release of Australian Home Loan Data and Investment Lending for the month of January. All eyes this week will be on the release of the Australian Unemployment Rate data for the month of February. The forecast is for the Unemployment Rate to increase from the previous month from 4.8% to 5.00%.
To view live charts follow these links:
AUD/USD
AUD/EUR
AUD/GBP
AUD/JPY
AUD/NZD
NZD: The only significant data out of New Zealand this week which will have an impact on the Kiwi Dollar will be Thursday’s RBNZ Official Cash Rate release and Friday’s release of Retail Sales figures for the month of January. On Thursday all eyes will be on the RBNZ with the forecast for the official cash rate to fall from 3.5% to 2.5%. Friday’s release of New Zealand Retail Sales data is actually a good early indicator for the direction of the New Zealand economy. Retails Sales figures results are always looked closely by the market as it provides a street level view of the spending patterns of the general population as reported by the retailers.
To view live charts follow these links:
NZD/USD
GBP: The data front in the early part the UK week is fairly light with no significant releases due for release until mid to late week. No doubt the Sterling will take direction initially from offshore events and announcements. There are some announcements that are considered low key which starts on Tuesday with the release of BRC Retail Sales Monitor and RICS House Price Balance for the month of February. On Wednesday is the release of NIESR Gross Domestic Product Estimate for the month of February. This data release is an unofficial estimate of UK GDP that comes out one month before the official release. Finally this week on Wednesday is the release of UK Visible Trade Balance for the month of January.
To view live charts follow these links:
GBP/USD
EUR: On the data front this week in Europe is fairly light. It kicks off the week today with the German Producer Price index for the month of January. This data can be an early indicator for inflation. A low expected PPI falling to -1.00%, will continue to suggest further economic slowdown. On Tuesday is the release of both German Consumer Price Index and German Trade Balance data for the month of January. Also released on Tuesday is Euro-Zone Producer Price Index for the month of January. On Wednesday will see the release of French Consumer Price Index for the month of February. Also released on Wednesday is the release of Euro Zone Industrial Production data for the month of January. On Thursday all eyes will be on the Euro Zone Retail Sales figures for the month of January.
Global fix for global problem | The AustralianMy seven-point plan will solve the crisis, contends Kevin Rudd | March 06, 2009
Article from: The Australian
AS the global economic recession increasingly weighs on the Australian economy, the prospects for recovery hinge on the success of efforts to deal with the problems that caused the global financial crisis.
That is why it is so critical for Australia, as for other economies, that the world's leading economies agree to implement a clear plan of action to cleanse the global financial system of the trillions of dollars of toxic assets that are stopping credit flows and driving the world into recession.
The global private credit process is not working because bank balance sheets in the US and Europe are weighed down with toxic assets: loans and securities infected by bad sub-prime lending. These toxic assets have become a poison in the bloodstream of the global financial system. While US and European banks have regulatory capital of about $US3.4 trillion ($5.2trillion), estimates of the potential losses from these toxic loans and securities range from $US2.2 trillion to as high as $US3.6 trillion, and as the global recession creates even more non-performing loans, these numbers could go higher.
Without new capital, writing off these bad loans would result in the US and European banking systems breaching capital adequacy, with some institutions being left insolvent. The International Monetary Fund has estimated that the net capital shortfall in US and European financial institutions is likely to be at least $500 billion. Some market estimates say the shortfall could be as much as $1 trillion.
Australian banks have very little exposure to toxic assets, and that is one of the reasons they are among the best performing banks in the world today. But Australia is closely integrated with the global economy and the global financial system. Many of our businesses sell goods overseas and rely on finance from overseas to invest and grow. The crisis in global credit markets has direct impacts for Australian banks, Australian businesses and Australian households.
If the flow of global credit is restricted to Australia because of the impact of toxic assets on the major banks' global balance sheets, then it becomes harder for banks to lend money and, as a result, business investment and consumer spending get choked off. This creates a vicious cycle: as the economy slows, unemployment rises and household incomes fall. As household incomes fall, demand falls further and business investment is further reduced.
We need to break the vicious cycle caused by the build-up of toxic assets in the global financial system. That is why the Group of 20 Leaders Summit on April 2 in London is so important. It represents the best opportunity to reach agreement on a global strategy to cleanse banks of toxic assets. Australia has been working intensively on this strategy with other G20 members. This is the central element of a wider strategy to strengthen the regulatory framework for the financial system and move towards economic recovery. So what does this mean in substance?
Australia is actively pressing for a seven-part strategy to cleanse balance sheets of toxic assets.
First, all weak and all systemically significant financial institutions should be subject to a stress test. The public and governments need to know with confidence that the assets on bank balance sheets are sound. There should be no more surprises.
Second, all non-viable banks must be closed or nationalised. Keeping insolvent banks alive is itself systemically damaging.
Third, toxic assets on bank balance sheets must be neutralised. This can be achieved by the creation of a "bad bank" or through an insurance mechanism. This needs to be done quickly and comprehensively, and may require compulsion.
Fourth, the prices of bad assets should be derived from a transparent and simple formula that is consistent across jurisdictions.
Fifth, it is essential that the public and private sectors, and international financial institutions, work closely together. If governments go down the route of nationalisation, it should be temporary. Nevertheless, the details of a future resale to private buyers do not need to be addressed now.
Sixth, a critical element of the stress test must be to recapitalise banks, so they have the capital they need to lend and reopen the arteries of credit.
Seventh, once banks have been adequately capitalised, they must formally agree to maintain regulated levels of lending in return for government support through sovereign guarantees on deposits and/or interbank lending.
We are in a global economic emergency. We have seen the sharpest synchronised downturn in the global economy in our lifetimes, and Australia has not been immune from that.
Australians know we are coping with this downturn better than other countries, but our medium-term prospects depend on global efforts to deal with the cause of this emergency. That is why a strong co-ordinated response to the toxic assets crisis is so important, and that is why Australia will press so strongly for a clear plan of action in London next month.
Radical plan to lift graduates | The AustralianTHE Rudd Government will remove caps on the number of university places and allow student demand to drive an ambitious target to raise the number of qualified graduates entering the workforce.
In flagging the most radical shakeup of the university sector since the Dawkins reforms of thelate 1980s, Education Minister Julia Gillard yesterday committed to abolishing the cap on commonwealth-supported places by 2012.
Ms Gillard emphasised that the new system, which broadly follows the Bradley review into higher education, would not involve students being given vouchers to cash in; rather, universities would be funded according to how many students they attracted. Under the government target, 40 per cent of 25- to 34-year-olds will hold a bachelor or higher degree by 2025, up from 32 per cent.
To guard against course standards falling as universities expand, a new national regulator will be established to accredit providers and ensure quality.
The proposed reforms have raised concerns that the new "student-centred, demand-driven" system could hurt regional campuses, create too many graduates in unneeded skills areas and force universities to cut unpopular but perhaps worthwhile courses.
The Government is expected to announce a range of measures to counter potential imbalances when it provides funding details at the time of the May budget, including funding for the higher cost of rural provision. It has ruled out removing the cap on HECS fees charged by universities.
In a speech to be delivered in Sydney today, Ms Gillard is expected to outline the future for an expanded vocational education and training sector.
Many of the students the Government is aiming to get into university will probably be "second-chance" students who do not get into university on their school scores and have to study at TAFEs.
"Funding that meets the demands made by students, coupled with exacting targets, rigorous quality assurance, full transparency and an emphasis on equity, is the only way Australia can meet the knowledge and skills challenges confronting us," Ms Gillard told the Universities Australia conference in Canberra yesterday.
Ms Gillard's reform agenda broadly endorses the vision set out by Denise Bradley in her review released in December, which came with about $7billion of recommendations.
The Government has added five years to the Bradley participation target, extending it from 2020 to 2025. It is holding off announcing spending measures until the May budget.
Ms Gillard warned that the economic crisis would limit the capacity of the Government to increase funding in the near term.
"Budgetary constraints will affect the immediacy of our response. We can't implement it all today or tomorrow," she said.
From 2010, the Government will raise the cap on over-enrolments at universities from 5per cent to 10 per cent to allow universities to prepare for the change. Once the cap is removed, universities will be funded according to how many students they attract.
It's pointless to panic | The AustralianThe economy has slowed but it is certainly not sinking
THE good news is that yesterday's bad economic information, showing the economy contracted by 0.5 per cent in the December quarter, could have been worse. There is no denying that the first decline in eight years and the job losses that inevitably accompany it are unfortunate. But this is a result that all Australia's major trading partners would wish they had had. While yesterday's national accounts demonstrate that Australia's economy was dead in the water last year, with annual growth of just 0.3 per cent, at least it did not sink fast. In contrast, the US economy declined by five times our figure in the last quarter of 2008 and Japan sank by 3.3 per cent, not for all of 2008, but for just the last three months. Even China ceased to steam ahead. While the comrades are careful with information and do not publish quarterly figures, analysts predict the Chinese economy did not grow at all in the last three months of last year.
But there is no reason to revel in our relatively good performance, because the poor performance of these large economies shows us the shape of things to come. Certainly, with the banks still solvent Australia is in better shape than virtually all members of the G20 group of developed economies and there is the occasional ray, however feeble, of economic sunshine. On Tuesday, the Reserve Bank declined to cut interest rates, demonstrating that while the economy is taking water, it is still safely afloat. However, there is no way we can navigate around the wrecks of the world economy. If the US, whose consumers buy Asia's exports, continues to go backwards, it is hard to see how China, Japan, and the rest of export-oriented Asia, for that matter, can grow this year. And without global growth, demand for our energy exports will drop, dragging the rest of the economy down with it. The chance of the last quarter being the only occasion when the economy contracts is remote. News yesterday that vehicle sales in the first two months of the year were 20 per cent down on the comparable period last year is just one of many signs that times are hard.
The question is how much harder they will get and for how long. Just as we are still suffering from Treasurer Wayne Swan's determination to slay the non-existent inflation dragon by urging the Reserve Bank to raise interest rates in the first half of last year, the impact of government stimulus packages and interest rate cuts will take a while to have an impact. It took time for the Government's $10.4 billion Christmas cash splash to breathe any fire into the economy, and the effects of the $42billion stimulus package announced in early February will not be apparent for months. There is also a risk that people frightened by a worsening economy will save their cash payments, as many did with some of the money they received in December. Yesterday, Prime Minister Kevin Rudd warned that Australia cannot not swim against the global economic tide. True enough. But as a beach-going people, we know that the tide turns, that rips don't run forever, and that the way to survive in rough water is not to panic.
Brown, Obama attempt to halt financial slide | smh.com.auTHE British Prime Minister, Gordon Brown, and the US President, Barack Obama, were due to meet overnight in a renewed effort to prevent a global depression, as sharemarkets touched new lows amid fears of a deepening financial crisis.
Top of the agenda during the first meeting between the two men since Mr Obama assumed office was to be hammering out an international action plan for the London meeting of the Group of 20 nations next month.
Mr Brown has said he wants the 20 largest economies to agree to a "global new deal" involving much more co-ordinated efforts to stabilise and regulate the teetering world financial system.
Mr Brown was to press Mr Obama to back plans for an international college of supervisors to monitor the activities of multinational banks and for action against tax havens. "We want to ensure there are no regulatory gaps," a Downing Street spokesman said.
Mr Obama was likely to be highly receptive to at least the second idea, having last year campaigned vigorously against tax havens.
But how far he would go on global regulation remained to be seen. Mr Obama has established his own taskforce to overhaul the US financial regulatory system, and he has strongly criticised the performance of US regulators.
However, he faces his own domestic challenges in tightening financial oversight as it will require legislation, and he needs Republican support in Congress.
The Guardian reported that Mr Brown would use a speech to Congress to admit failings in Britain for which he held some responsibility.
He would also focus on the need to create green jobs, a theme that has been taken up by Mr Obama in his 2010 budget, to be presented to Congress soon.
The outcome of the talks between the two leaders will be important in restoring confidence in the short term. Fears of a new wave of financial instability were sparked on Monday as the giant American Insurance Group reported a history-making $US61.7 billion fourth-quarter loss.
The company has received an extra $US30 billion in assistance from the US Government, which has also relaxed the terms of an earlier bail-out of $US150 billion.
Despite repeated questions, a White House spokesman, Robert Gibbs, refused to say whether this was the last assistance that would be necessary to keep the insurance giant afloat. "The President has said that we'll take steps to ensure that there's not an economic catastrophe," he said.
AIG's problems stem from insurance written on credit default swaps and other derivatives. But a collapse of the group would cause dislocation throughout the world economy because it would throw into doubt all manner of insurance policies, from business and personal insurance to large policies covering the operations of big companies.
