Emigration Market News

09/03/2010

Australia

Following a potentially encouraging recovery into the monthly close in January, sterling has resumed its downward spiral against the Australian dollar, hitting 25 year lows and closing at its lowest monthly level since February 1985.

The central bank (RBA) has moved once more to unwind previous emergency rate cuts by raising the cash rate by another 25bp to 4%. The board cited the outlook on growth and inflation for moving rates ‘closer to average.’ Further rate rises are seen during the course of this year although there may well be a pause of 2 to 3 months before the next hike. Deputy RBA Governor Battellino noted the rise in the dollar had helped contain inflation but remains cautious on the inflationary effect of the current mining boom which has in turn boosted investment.

Further evidence of Australia’s resilience came in the form of exceptionally strong labour data which pulled the jobless rate down to 5.3%, improving business confidence and above forecast building approvals. Following weaker retail sales in December, a snap back in January also suggests consumer spending is back on track. The beginning of March has seen the latest set of growth figures released showing fourth quarter expansion of 0.9%. Upwards revisions to previously quarters took the year on year rate of growth up to 2.7%.

A couple of months ago, we indicated there was little in the way of technical support for £-aud until just above 1.6000. This remains the case and despite the 17-cent fall over the last month to fresh 25-year lows, there is no evidence from the charts of a change in fortunes for the pound. The 1.6500 low seen last week is now the only level of note standing in the way of 1.6020/00. Resistance now lies at 1.6760, 1.6915, 1.7060 and 1.7220/60. The latter level needs to be regained to bring a degree of stability back to sterling although 1.8280/1.8360 and 1.8690 would provide more formidable barriers should sterling defy current logic and stage a stronger rally.

                                            Australia                           UK
Interest rates                  4.00%                               0.50%
Unemployment Rate      5.3%                                 7.8%
CPI Inflation                      +2.1% y/y to Dec ‘09       +3.1 y/y to Jan ‘10
GDP                                      0.9% q/q to Dec ‘09          0.3% q/q to Dec ‘09

 

New Zealand

The pound has fallen sharply over the last 5 weeks to retest the 2.1300 low from last October. Although this level has held firm thus far, sterling remains a long way off recovery levels and, as such, is vulnerable to further weakness.

With no central bank meetings scheduled for the first two months of the year, interest rates are obviously on hold at 2.5%. It remains unlikely any action will be taken on interest rates in the first half of the year.

On balance, data throughout February was disappointing. Labour data was the worst of all with the unemployment rate in Q4 rising to 7.3%, the highest level in a decade. Unsurprisingly therefore, retail sales in December were weak and consumer confidence slipped back from January’s 3-year high. The trade balance swung to a surplus for the first time since May last year although this came on the back of a decline in both exports and imports.

As far as the currency outlook goes, the 2.1365/2.1300 area is clearly important in preventing further declines which would take us towards 2.1080/2.1000 and 2.0750. Resistance now at 2.1955, 2.21, 2.2435 and the more pivotal 2.2850/2.3000 and 2.3300 areas.

                                            New Zealand                  UK
Interest rates                  2.50%                               0.50%
Unemployment Rate      7.3%                                 7.8%
CPI Inflation                     2.0% y/y to Dec ‘10         +3.1 y/y to Jan '10
GDP                                    0.2% q/q to Sep‘09           0.3% q/q to Dec ‘09

 
Canada

The mildly encouraging signs from the small recovery towards the end of January have disappeared into distant memory with £-cad plummeting to 25-year lows throughout February and the beginning of this month.

At the beginning of this month, The Bank of Canada once again left interest rates unchanged at 0.25% and reiterated its conditional commitment to keep the target rate steady until the second half of the year. The central bank acknowledges conditions have improved a little since January projections although the inflation outlook remains ‘roughly balanced.’ Once again, the strength of the dollar was noted as a continued significant drag on economic activity.
 
Employment grew at a stronger than expected pace in January, bringing the unemployment rate back down to 8.3% from 8.5% in December. Inflation, as highlighted in the Bank of Canada policy statement, was above forecast while retail sales were a little softer than consensus. The single biggest market mover over the last few weeks however was the Q4 GDP released at the beginning of this month which came in well above consensus at 1.2% for Q4 contributing to annualised growth of 5%. A weaker Ivey PMI and falling building permits have since stemmed, although far from reversed, the Canadian dollar rise.

At 25-year lows, sterling is unsurprisingly looking oversold on many timeframes but there is little sign of a turn of any note just yet. As such, the 1.5395 low from the beginning of the month remains under threat and should this level give way we would be looking at the prospect of returning to the 1.5200 low of October 1976 and potentially the psychosocial 1.5000 level. The initial recovery target lies at 1.5625 followed by 1.5980/1.6000. Only beyond this latter level then last year’s 1.6240 low would suggest the potential for sterling to claw back some of the 20% losses incurred since the middle of last year.

                                            Canada                              UK
Interest rates                  0.25%                                0.50%
Unemployment Rate      8.3%                                  7.8%
CPI Inflation                     1.9% y/y to Jan ‘10        +3.1 y/y to Jan '10
GDP                                     1.2% q/q to Dec ‘09          0.3% q/q to Dec ‘09

 

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