Emigration Market News

03/02/2010

Australia

The pound slumped to a near 25-year low against the Australian dollar in the early part of January but recovered to close the month with a marginal net gain (0.4%).

Following a scheduled break in monthly central meetings, the RBA reconvened this week and surprised the markets by keeping interest rates on hold. A 25bp hike had been expected but it was preferred to wait for the effect of recent rises to filter through before looking at further tightening. Global conditions were cited as the reason behind the decision although from a domestic perspective, business confidence has been dented by the three previous hikes.

On the data front, strong retail sales and building approvals kicked off the New Year (highlighted in last month’s report) and the theme of stronger data continued with another blistering employment report with over 35,000 jobs added in December which saw the unemployment rate drop to 5.5%. The jobs data offset weak home loans figures which had shown a sharp 5.6% fall. Consumer confidence, in line with improving labour markets, also jumped to a 6-month high while the month rounded off with Q4 consumer price inflation which, at 0.5% q/q, was more or less in line with expectations but down from 1% in Q3.

Ultimately, the continued improvement in data was overshadowed by fears of Chinese authorities reining in bank lending to slow the economy. Knock on effect saw commodity prices sharply lower on the month, diminished risk appetite and therefore a move away from risk based investment resulting in a lower A$.

Technically, the recovery from fresh lows to close the month with a small gain is encouraging although we have still to seriously threaten the 1.8250/1.8350 area which needs to be cleared to suggest sterling has the power to push on through 15-month highs and tackle the 1.9000/1.9500 region. Shorter term momentum is faltering following the 3-week, 9-cent rally last month. It is important for 1.7700 to hold on pullbacks to keep bulls in control and prevent pressure building on 1.7330/1.7260 again.

                                            Australia                           UK
Interest rates                  3.75%                                 0.50%
Unemployment Rate      5.5%                                   7.8%
CPI Inflation                      +2.1% y/y to Dec ‘09        +2.9 y/y to Nov ‘09
GDP                                    0.2% q/q to Sep ‘09        0.1% q/q to Dec ‘09

New Zealand

The pound started the year on the back foot but in posting a 2.1610 low, managed to dig in ahead of the 2.1300 level seen last October. An encouraging 3-week rally into month end saw net gains of almost 4 ½ cents or 2%, the best result for £-nzd since last October.

Interest rates were once again held at 2.5% with the accompanying statement suggesting they will remain this way until the middle of the year given New Zealand’s economic recovery is very much dependant on global growth.

Economic data released last month was mixed but largely offset one another. In particular, the consumer price index was a touch weaker than expected at 2.0% for Q4 y/y against expectations of a 2.1% rise although this was up from the previous 1.7% annualised reading. Meanwhile, November retail sales were encouraging with a 0.8% rise. The volatile trade balance narrowed to its smallest annual deficit in more than seven years as imports fell for the ninth consecutive month. As with the Australian dollar, risk aversion has had a negative impact on the relatively high yield NZ$.

Technically, no major change to the bigger picture although the higher low has given sterling a boost. The 2.3000 level remained just out of reach in the January rally leaving this level and the 2.3280/2.3310 zone as the near term hurdles to clear to allow for a run towards 2.4000 and the pivotal 2.4110 level. Support provided by 2.2125, 2.2000, 2.1700/2.1600 and 2.1400/2.1300.

                                            New Zealand                    UK
Interest rates                  2.50%                                 0.50%
Unemployment Rate      6.5%                                   7.8%
CPI Inflation                      +2.0% y/y to Dec ‘09        +2.9 y/y to Nov ‘09
GDP                                    0.2% q/q to Sep ‘09        0.1% q/q to Dec ‘09

Canada

The pound slipped to a 12-week low of close to 1.6400 against the Canadian dollar at the beginning of January but managed to hold up ahead of the 1.6240 multi-year low posted last October. In keeping with the general sterling trend for the month, a subsequent 3-week rally into month end saw closing levels up a net 0.5%.

For the ninth consecutive month, there was no change to the 0.25% overnight interest rate by the Bank of Canada as conditions remained largely consistent with those in the October report. Currency strength was again noted as a potential drag on the economy as it continued to hinder export while any upside inflation risks are seen coming in the event of a generally stronger globally recovery.

In terms of economic releases the labour data, mentioned in last month’s report, came in weak and coincided with a turn higher in £-cad. Housing data was mixed with strong housing starts being offset by a lower reading in building permits. Inflation undershot expectations with a 1.3% y/y rise and retail sales were also something of a disappointment although the previous months figure was upwardly revised. GDP figures for November released at the end of last week were a touch better than expected at 0.4% and Q4 growth is anticipated to pick up from the 0.1% recorded in Q3 when the country officially emerged from recession.

Technically, as mentioned above, the recovery from a higher low in January is encouraging although the pound still has a long way to go if the dominant bear trend from the beginning of 2007 is to be challenged. The first step towards a stronger recovery would be to break last month’s 1.7285 high which would set the scene for the pound to extend gains towards 1.7410/1.7450 and 1.7770. Stronger resistance lies behind here at 1.7900/1.8000. Only beyond this latter area would suggest a shift in the longer term trend. Near term support levels now lie at 1.6845, 1.6740 and 1.6665 with 1.6480/00 and 1.6330/1.6240 the bigger levels to watch should the New Year rally in sterling falter.
 
                                            Canada                              UK
Interest rates                  0.25%                                 0.50%
Unemployment Rate      8.5%                                   7.8%
CPI Inflation                      1.3% y/y to Dec ‘09        +2.9 y/y to Nov ‘09
GDP                                    0.1% q/q to Sep ‘09        0.1% q/q to Dec ‘09

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