AUDUSD Feeling Heavy
Antipodean currencies were pushed around overnight by mixed data releases, references to currency strength by politicians, and some unfavorable press coverage. New Zealand GDP came in considerably stronger than expected at +0.6% q/q (cons. 0.4%). However, our New Zealand economist doubts the stronger print will prompt the RBNZ to hike sooner than previously indicated, given there is enough uncertainty about the global outlook to suggest that the RBNZ will leave the OCR unchanged for some time yet – perhaps until the H2 2013. Next, a private sector flash estimate for China PMI nudged ever so slightly higher to 47.8 (prev. 47.6), but there was little reaction as all the attention was focused on an article in the Australian Financial Review suggesting that Australia’s triple-A rating could be at risk if AUDUSD does not fall in line with weaker commodity prices. An S&P analyst was quoted saying “We could lower the ratings if external imbalances were to grow more than we currently expect, either because the exchange rate no longer adjusts to terms of trade movements, the terms of trade deteriorates quickly and markedly, or the banking sector’s cost of external funding increases sharply.” Meanwhile, New Zealand continues to grapple with currency strength of its own. Finance
Minister English said the strong kiwi is hurting exports, but that the sector is resilient. He added that any attempt to move NZD would come with large costs and risks, and that there is no way to pick the “right exchange rate” and, even if there were, the tools do not exist to keep it there. In the US, housing starts rose 2.3% m/m in August though permits slipped by 1.0% m/m to 803k. As the Fed’s exigent programmes will likely run for some time, data impact may prove limited in the immediate future on policy, barring major surprises to either direction. This adds focus to policy responses in other economies, notably Europe and EM. Yesterday a Greek finance ministry official noted that Greece and the Troika reached an agreement on as much as EUR9.5 bn out of the EUR11.5 bn of budget cuts that Greece pledged to deliver. The results of the most recent troika review are expected soon.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank