GO Markets FX Analysis | Risk currencies drift higher but the fiscal blues persist

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By Chris Gore | November 13, 2012 10:57 AM EST

GoMarkets

Markets drift higher but the fiscal blues persist

In lighter than usual trading volumes due to the US Veterans Day holiday, stocks managed to squeeze out moderate gains overnight, but fiscal cliff concerns remained the ominous theme on the street. There were however, some positive themes floating about with cautious optimism Greece will receive their next tranche of bailout funds, after Greek parliament passed the 2013 budget yesterday. Euro region finance ministers are currently locked in talks in an effort to quality Greece for their next bailout instalment. For Athens, securing their next tranche of bailout funds can't come too soon, with 5 billion euros of maturing debt on Friday. Still, the decision to unlock the funds may not be made in time, suggesting Greece will need to undertake stop-gap measures for Friday's bond redemption.

Risk trends overnight favored moderate US dollar losses, but quiet trading conditions and little in the way of offshore data, risk currencies failed to break out of current ranges. Markets also found solace in the latest Chinese trade data which showed exports from the region swelled 11.6 percent in October. Nevertheless, a larger than anticipated rise of exports from the region has been largely attributed to pre Christmas demand, rather than pointing to a sustained period of elevated growth. Although buoyant, stagnant import growth suggests domestic demand remains subdued, and of particular note was a 21.8 per cent slide in import activity from Australia. Total Imports to the region rose 2.4 percent in October, matching September's growth. Still, we anticipate the accumulative momentum of a series of stronger data points to remain a supportive factor for commodity bloc currencies, with the Kiwi and Aussie dollar's the first in-line.

Locally, the domestic data pulse continues to provide moderate tailwinds for the Australian dollar. Data released yesterday showed new home loans increased 0.9 percent in September, following an upwardly revised 2.1 percent in August, signaling the housing recovery is gaining traction. Strength in loan activity is also considered a barometer of consumer confidence and positive pre-cursor for consumption, suggesting the impact of the RBA's recent interest rate cuts may be beginning to infiltrate the economy. Nevertheless, we saw a fairly muted reaction immediately after yesterday's home loan activity data, but bids began to surface ahead of the European open. In light of the positive local data pulse, expectations of a December rate cut is also slowly being phased out, in turn a positive directive for the local unit. Meanwhile, Russia's efforts to diversify currency reserves appear to have once again turned to the Aussie dollar for inspiration, with sovereign bids reported yesterday. Russia has in the past made no secret of their intent to look at diversifying their currency portfolio, in turn, currencies such as the Australian dollar which hold both yield and safe-haven qualities are an attractive proposition.

The Australian dollar peaked at 104.41 US cents and remains solidly bid around current levels of 104.25 US cents, ahead of a reasonably quiet day in terms market moving data on the docket. Local markets will however be watching the release of the NAB business confidence and condition survey, but anticipate a material break through resistance of 104.75/80 unlikely ahead of the European handover.

Yen defies fundamental worth as recession looms

After falling to six-month lows against the greenback early last week, the Japanese Yen's safe haven qualities have seen the USDJPY sink back below the 80-handle. It's abundantly clear; Yen strength continues defy its fundamental worth with yesterday's Japanese GDP release showing the economy contracted 3.5 percent in the third quarter. Economy minister Seiji Maehara, conceded the economy may already be in recessionary phase, adding to weight to prospects of further stimulus measures on the horizon. Less-than-inspiring global conditions in conjunction with the China/Japan dispute of the Senkaku/Diaoyu islands appear to be taking its toll on the export-contingent economy. Nevertheless, leaders appear to be rowing against the rapids, with a series of recent efforts to kick start the economy by means of monetary stimulus failing to set the inflection needed for a sustained period of Yen weakness. At the time of writing the US dollar is buying 79.5 Yen.

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