Market Overview by FiboGroup - 2015

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The Australian dollar touched a fresh 5.5 year low in today’s trade as the US dollar continues to rally and fears of a slowdown in China this year weighed on the currency

The Aussie dollar briefly hit US80.35 cents today, its lowest level since July 2009.

The US Federal Reserve is widely expected to lift Interest rates this year with some analysts predicting that the first move will come in April which is much sooner than most predicted last year.

“The Australian dollar will come under further pressure as we move towards the first expected rate increase in the US” noted analysts from Fibogroup.

“The market is already starting to price in a rate hike which will keep a cloud hanging over the Aussie currency”.

“On top of that there is the potential for an Interest rate cut in Australia sometime this year which only adds fuel to the fire”.

Easy Forex currency dealer Ricky Liu said weak commodity prices and the overall strength of the US economy were likely to pressure the Australian dollar in 2015
"US dollar strength has continued in anticipation of an interest rate hike by the US Federal Reserve, so we're getting a weaker Australian dollar," Mr Liu said.

"Commodity prices have continued to fall off and China is slowing down which also affects the Australian economy”.

"Australia is slowly going toward a recession."

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The Australian dollar has pushed higher today after a better than expected trade deficit and some positive numbers out of China.

At 5.45pm (AEDT) the local currency is trading at US81.54 cents after hitting a fresh 5.5 year low of US80.34 in yesterday’s trade.

Australia’s budget deficit widened to $925 million in November which was substantially below analysts’ expectations of $2 billion, helping to offset the recent decline in key commodity prices.

National Australia Bank senior economist Spiros Papadopoulos said although the numbers were better than expected, the deficit had widened since October, reflecting the downward trend in Australia's overall terms of trade.

"It's the same old story where we've got deteriorating values but the volume side of things still looks good and is still pointing to a good contribution to economic growth this year," Mr Papadopoulos said.

"We're still seeing good volumes growth coming through, but the price impact has obviously been quite significant."

The Aussie dollar also received a boost after the Chinese services sector had its biggest jump in 3 months in December, underpinned by new orders and offsetting a recent string of disappointing economic news.

China's services sector grew at its fastest pace in three months in December as new orders remained strong, a private survey showed, an encouraging sign of strength even as manufacturing activity slows and the property market softens.

The HSBC Purchasing Managers' Index (PMI) jumped to 53.4 last month from November's 53.0, significantly above the all important 50 level.

A level in the index below 50 is generally seen as a contraction.

“This is welcoming news for China at a time where fears of a slowdown are creeping into the economy” noted analysts at Fibogroup forex brokers

“It may also help cover for the recent and expected future decline in the housing market”

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Disappointing data from the US was not enough to save the Australian dollar which is trading back below the US81.00 cents mark today.

At 9.10pm (AEDT) the local currency is trading at US 80.61 cents heading back down towards a new 5.5 year low.

The ISM Non-Manufacturing Index from the US came in at 56.2 significantly lower than analysts’ expectations of 58.2 and well down on Novembers reading of 59.3.

Anthony Nieves, who monitors the survey for the ISM noted,

“There was a little bit of moderation, but overall it’s a strong report,” Economists weren’t worried about the decline since the index remains above 50.

“If the PMI’s level out at relatively high readings, it suggests that the economy continues to do well,” wrote economists at Jefferies in a research note. “It does not suggest that the economy is slowing.”

Analysts from Fibogroup forex brokers see this as worrying sign for the Aussie dollar with further falls expected in the nearest future.

“Traders expected some support to develop and the Australian dollar to hold above the US81.00 cents level after the disappointing data from the US”

“It just goes to show that all the momentum is with the US dollar at the moment so further falls in the Aussie dollar are likely in the nearest future”.

Later today the market will await the latest FOMC minutes meeting from the US where the focus will be on the timing of an interest rate rise and depending on the tone of the Fed we could see the Australian dollar come under further pressure.

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The Australian dollar is trading higher today after the release of the latest building approval figures hit the market well above analysts’ expectations.

At 8,00pm (AEDT) the Australian dollar is trading at US81.07 cents up from US80.77 cents in yesterday’s trade.

Building permits for the construction of new homes rose 7.5 % in November, which was well above most analysts’ expectations of a 3% decline, clearly showing the real estate market in Australia is still powering ahead.

“These numbers are a welcome relief for the Aussie dollar at a time when the currency doesn’t have much going for it” noted analysts from Fibogroup forex brokers.

“The real estate market and construction Industry as a whole continues to perform well in Australia which may help cushion further falls in the Australian dollar”.

All eyes will be on tomorrow’s release of retail sales data out of Australia and numbers out of China where a break down below the US80.00 cents mark is not out of the question if the data fails to impress.

Growth in China is a little worrying at the moment so investors will be looking for some strong CPI numbers tomorrow to alleviate those fears.

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The Australian dollar is stable today, holding up pretty well after the release of disappointing local retail sales data.

At 8.23pm (AEDT) the Australian dollar is trading at US 81.23 cents virtually unchanged from yesterday’s close of US81.22 cents.

Retail sales in Australia rose by 0.1% in November missing analysts forecasts of a 0.2% rise which was disappointing considering the run up to Christmas and the New Year period where shoppers usually like to open there wallets.

“The unemployment factor is starting weigh on consumers’ minds” noted analysts from Fibogroup forex brokers

“The Jobless rate in Australia is sitting at 6.3%, its highest level in 12 years and this has to have people a little nervous”.

They also mentioned that one of the effects of a falling Australian dollar is a lower exchange rate which is connected with purchases of goods from overseas,

The Australian dollar is down more than 15% this year against its US counterpart which definitely cuts in to the purchasing power of consumers as most imported goods are priced in US dollars”.

Later today the market will await the release of key employment data as the latest non-farm payrolls report from the US hits the market.

Unemployment in the US currently sits at 5.8%, its lowest level in 6 years and was one of the stellar economic performers for the American economy in 2014.

There will be a lot of hype in the lead up to the release of the non-farm payrolls with the US dollar likely to strengthen against most major currencies if the data lives up to expectations.

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The Australian dollar has jumped above the US82.00 cents level as wage growth in the US put into question the strength of the recovery in the US economy.

At 9am AEDT the local currency is trading at US82.06 cents, up from US81.40 cents on Friday.

The non-farm payrolls showed employment rose more than forecast adding 252,000 jobs in December bringing down the jobless rate to 5.6 percent, a Labor Department report showed.


But the job numbers were deceiving as wages rose only 1.7 % from a year ago, barely keeping up with inflation and well below analysts’ forecasts of 2.2% growth.

Emphasizing the Importance of wage growth in the US and just how important it is to the recovery of the US economy, Janus Capital Group’s Bill Gross who used to run the world’s biggest bond fund before joining Janus in September said in a radio interview “It’s about wages”

“The market is conflicted over what the Fed will do.’

Mentioning the problem of job creation and a falling unemployment rate coupled with wages that are below the Fed’s inflation target he noted,

‘‘We are creating a lot of jobs, part of it may be part-time. The creation of jobs is one thing, the creation of wages is another. Minus 0.2 percent in the month and a 1.7 percent annual hourly increase, just isn’t enough to sustain a U.S. economy.”

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The Australian dollar is making a run back towards the US82.00 cents level today after strong data out of China provided a boost for the local currency

At 7.19pm (AEDT) the Aussie dollar was trading US81.81 cents at up from in US81.56 cents yesterday’s trade

Chinese exports rose 9.7 % in December to US$227.5 billion, coming in much higher than analysts’ expectations of a 4.7% rise while imports declined further than expected coming in at -2.4% against a market consensus of -6.6%

With the US on the recovery trail, we may see the Chinese export market continue to perform well according to Julian Evans-Pritchard of Capital Economics who noted,

“Looking ahead, although the global economy remains fragile we nonetheless expect growth in many of China’s key export markets, such as the US, to stage a slight recovery this year, which should provide support to Chinese exports,”.

These numbers are good news for the Australian dollar as the local currency has been weighed down by it’s own export market and in particular the lack of demand for iron ore, which has fallen sharply over the past year.

If the Chinese import market can hold up we may see a revival in demand for Australia’s biggest commodity which may provide some support to the Australian dollar.
 

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The Australian dollar is trading lower today after a sharp decline in copper prices overnight pressured the currency.

At 11.09pm (AEDT) the Australian dollar is trading at US81.25 cents down from US81.65 cents in yesterday’s trade.

Copper, Australia’s fifth biggest export fell around 6% to $2.49 a pound, a level not seen since 2009 as global demand for the commodity, especially from China remains uncertain.

The price of copper has held up pretty well considering the drop in other key commodities such as oil and Iron ore, Australia’s biggest export, but looking forward we may see further falls according to Ivan Szpakowski, an analyst at Citigroup Inc who noted,

“People have seen oil prices decline so much and now they’re targeting other commodities. Copper is falling faster than most other commodities because it’s the one that is played by the macro investors and by people who are looking at the broader picture rather than commodity fundamentals.”

One of the disappointing stories in the Australian economy over the last year has been the rising unemployment rate which now sits at a 12 year high of 6,3%.

The sharp fall in copper prices is starting to filter through to the job market with gold and copper mining company PanAust announcing plans to cut 182 jobs from its workforce as part of a business review due to a slump in copper prices.

“This is bad news for the Aussie dollar and the Australian economy as a whole” noted analysts at Fibogroup forex brokers

“As commodity prices like Iron ore and copper fall further as most analysts predict we can only expect further job losses in the mining sector which in turn will put more downward pressure on the Australian dollar”.

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The Australian dollar is trading sharply higher today after strong employment data and weak US retail sales figures pushed the currency back beyond the US82.00 cents mark.

At 4.45pm (AEDT) the Aussie dollar was trading at US82.08 cents up from US81.48 cents in yesterday’s trade.

Data from the Bureau of Statistics showed the unemployment rate fell to 6.1% in December below analysts’ estimates of 6.3%.

Even more surprising was the number of new jobs created, with the figure coming in at 37,400 well above expectations of 5,000 and unlike last month, the rise was mainly attributed to full time jobs.

Economists from UBS welcomed the news by noting that this is another step in the right direction after the recent rise in job advertisements and noted,

"Today's labour market data was clearly much better than expected , with a welcome lift in jobs growth to a near four-year high of 1.9 per cent year-on-year, to finally be more consistent with the leading indicators of employment, which we have long flagged as pointing to an imminent pick-up,"

Also giving a boost to the Australian dollar was the weak retail sales data out of the US yesterday which fell by 0.9% against analysts ‘expectations of a 0,1% fall casting doubt on the so called recovery of the US economy.

Brushing of the number as a cause for concern and looking at the big picture was Guy Berger, U.S. economist at RBS Securities Inc who has been one of the best forecasters of US retail sales for the past 2 years,

“Maybe the optimism a month ago got a little too heated, Its a weak number but it follows some really strong ones and I don’t think it changes my general feeling on how the economy and consumers are doing.”

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The Australian dollar is holding above the US82.00 cents mark today as disappointing data out of the US and a shock move by the Swiss central bank provides some support to the currency.

At 8.45pm (AEDT) the Australian dollar was trading at US82.19 virtually unchanged from yesterday’s price of US81.20 cents.

Jobless claims in the US jumped by 19,000 to 316,000 a Labor Department report showed, their highest level in 4 months and against analysts’ expectations of 291,000.

The numbers may be a little bit distorted, as there is usually a high number of temporary workers dismissed at the start of the New Year after the busy period in the run up to Christmas and some analysts expect the employment market to continue on from its solid performance in 2014

"We attribute the spike to the seasonal adjustment process," said Jesse Hurwitz, economist at Barclays Bank. "We expect initial and continuing claims to resume their downward trend in the coming weeks and reflect broader improvement in labor markets."

The Swiss central bank yesterday decided to end it peg against major currencies, which saw the Swiss Franc rally up to 30% against the Euro before finishing the day around 15% higher.

One of the beneficiaries of this surprise move could be the Australian dollar as Investors bail out of the Euro and seek higher yielding currencies like the Aussie.

CBA chief currency strategist Richard Grace noted,

"You've got some participants shuffling out of euros for fear of capital erosion on their reserves and holdings. They're looking for higher yielding currency assets and that includes the Australian dollar,"

"Going forward, the absence of this large buyer of euros in the market means the Aussie should trade a little bit higher against the euro. You then come back to the fundamentals without this [partial] distortion occurring"

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