Personal Finance - Standard Chartered Bank Market Matters
Foreign Exchange Market Report
FX Snapshot 30 May 2005
 

Personal Finance - Standard Chartered Bank USD
Positioning still the major risk
  • Data this week is expected to be mixed. The ISM surveys on Weds (manufacturing) and Fri (non-manu) are expected to show a further deterioration in business confidence. However, with demand remaining firm, the former is more likely to be caused by an inventory overhang rather than a sustainable shift in the economy to a lower gear. On Friday, the employment report is expected to show solid job gains in the order of 190k. Together with strong rises in personal disposable incomes, this suggests consumer demand is likely to remain firm. Increased confidence in the outlook for higher interest rates could well be seen as supportive for the US dollar, a view reinforced by the likelihood that US bond yields look set to rise in the coming weeks. However, with the market already positioned aggressively long USDs, the risks appear skewed to disappointment in response to any weakness in economic data. Therefore, it is just a matter of time before the USD corrects its recent strength, in our opinion.
    Personal Finance - Standard Chartered Bank EUR
    EUR losses on ‘No’ vote to be limited
  • The French electorate voted ‘no’ to the revised EU Constitution on Sunday. This is clearly damaging to the single market’s ability to push ahead with any reforms that would address structural issues that are inhibiting stronger economic growth. However, this does not signal the end of the single currency. Add in the fact that much of the bad news vis-à-vis the vote had already been priced in, and now is not the time to get too bearish about the EUR’s outlook. The ECB meets this week and is expected to leave rates on hold through 2005, despite calls for a cut from the private sector and the IMF. 1.2345 is going to prove a tough nut to crack.
    Personal Finance - Standard Chartered Bank JPY
    Data starts to improve, but BOJ still concerned
  • Industrial production showed its first expansion in three months in April and while it is forecasting a slump in May, another rebound in June is expected. However, the Bank of Japan remains concerned about the economic outlook in an environment that deflation is still the overriding problem. Therefore, it is keen to avoid a sharp increase in the value of the JPY, which could undermine economic activity further. USD/JPY looks set to test 109 before coming lower.
    Personal Finance - Standard Chartered Bank GBP
    Sterling risks technical rebound
  • This week is quite light on the data front with the focus to be the consumer confidence survey in Tuesday following the apparent slump in domestic activity of late. This indicator is expected to slip back into negative territory although the risks to Sterling appear to be increasingly to the upside following the recent sharp sell-off. GBP/AUD looks set to be well supported as it approaches key support.
    Personal Finance - Standard Chartered Bank AUD
    Data week in Australia
  • The focus will be on the raft of economic data due this week following the mixed economic signals of late. Data includes current account deficit and retail sales (Tues), GDP (Weds), trade balance (Thurs) and house prices (Fri). All of these have the potential to influence the AUD, but the near-term bias is for continued AUD weakness.
    Personal Finance - Standard Chartered Bank CAD
    Strong growth, deteriorating current account surplus
  • GDP data this week is likely to show growth accelerated in Q1 to an annualised 2.6% from 1.7% in Q4 2004. This is likely to keep the central bank focused on raising interest rates. For now, we expect the CAD to regain some of its lost ground.
    Personal Finance - Standard Chartered Bank SGD
    GBP/SGD challenging 2.98-3.00 support
  • 3.00 has proven to be more than merely psychological support for GBP/SGD. During the crisis, GBP/SGD hit 3 before falling sharply. Then, after breaking through this level in late 2003, despite testing it twice, we have yet to close below it on a weekly basis. This suggests that, in the near-term at least, the risks are skewed to higher levels. This is reaffirmed by the fact that GBP/SGD has a negative correlation with the USD, which we expect to weaken significantly at some point in the coming weeks. However, it is important to note that over the long term, we expect GBP/SGD to come significantly lower.
    Personal Finance - Standard Chartered Bank IDR
    Rupiah supportive flows expected to slow
  • We are potentially re-entering a period of an imbalance of supply/demand for foreign currency after the cessation of Philip Morris/Sampoerna related inflows. With FX reserves already having been depleted, the risks are for further IDR weakness going forward. The response of the central bank in this scenario would be crucial. A failure to show the willingness to hike interest rates significantly to ward off inflationary pressures could push the rupiah back towards 10k. The government, meanwhile, is rightly focusing on improving the business environment in order to increase the future flow of foreign direct investment into the country.
    Personal Finance - Standard Chartered Bank INR
    High oil prices may hurt the rupee
  • The sharp rise in oil prices in the past week has undermined support for the rupee. Clearly, as a country that is heavily dependent on oil imports to satisfy domestic demand, high oil prices are detrimental to the country’s already deteriorating external balance. The fact that the Reserve Bank will not be unhappy with the rupee weakening, given its overvalued nature, could give further impetus to INR losses. However, funding of the current deficit is unlikely to be hugely problematic and therefore rupee losses are likely to be limited, especially if the USD corrects against other major currencies as expected.
    Personal Finance - Standard Chartered Bank ZAR
    Another rate cut on the cards?
  • Weaker than anticipated inflation data last week has increased speculation that the South African Reserve Bank could cut interest rates yet again. In an environment of rising interest rates elsewhere in the world, most notably in the US, such action would lead to significantly narrower interest rate differentials. Meanwhile, alongside increased FX reserve accumulation, it would send a strong signal that the recent weakening of the ZAR was insufficient, in the central bank’s eyes, to restore external imbalances. Trade data this week is likely to reinforce this view, although the ZAR is expected to take a breather at some point in the next two weeks given the size of its losses in recent times.

    Key Levels
    Currency Support Resistance
    EUR/USD 1.2345**** 1.2120*** 1.2775** 1.2930****
    USD/JPY 105.00**** 103.30** 111.45**** 113.35**
    GBP/USD 1.7920*** 1.7700**** 1.8475**** 1.8475***
    AUD/USD 0.7250**** 0.7100*** 0.7535*** 0.7700**
    USD/CAD 1.2475 ** 1.2300 *** 1.2675 *** 1.2850 ***
    USD/SGD 1.6610**** 1.6450*** 1.6935**** 1.7180***
    USD/IDR 9400 **** 9335 **** 9530 ** 9620 ***
    USD/INR 45.30**** 44.85*** 46.20*** 46.50***
    USD/ZAR 6.0750*** 5.8700**** 6.6000**** 6.7700***

    Key: (*)-Minor; (*****)-Major

    Key Events
    Event Day Implication
    Indonesia inflation Unknown Key to the central bank’s interest rate response to any IDR weakness
    Japan industrial production Monday Showed first expansion in three months
    Canada current account Monday Surplus expected to almost halve in size
    Japan HH spending, jobs Tuesday Little sign of a near-term recovery
    Australia retail sales, current acc Tuesday Retail sales growth of 0.3% seen, c/a deficit still wide
    South Africa credit data Tuesday Alleceration not worrying from inflation perspective
    South Africa GDP Tuesday Slight moderation seen following strong Q4
    France/Germany unemployment Tuesday Unemployment rate expected to remain steady
    Eurozone confidence indices Tuesday Expected to remain weak and possibly weaken further
    UK Gfk consumer confidence Tuesday Expected to move back into negative territory
    US consumer confidence, Chic PMI Tuesday Former may bounce while biz confidence slides further
    Australia GDP Wednesday Significant strengthening seen, but backward-looking
    Singapore PMI Wednesday Expected to push back into expansion territory
    Eurozone PMI (manufacturing) Wednesday Still sluggish activity expected
    UK net consumer credit/CIPS PMI Wednesday  
    US manufacturing ISM Wednesday Still in expansion territory, prices paid index to fall
    EU Comm publishes Q2/Q3 GDP forecasts Wednesday Unlikely to paint a rosy picture
    Netherlands vote on EU Constitution Wednesday Given French ‘no’ vote, this is less important than it could have been
    Australia trade balance Thursday  
    South Africa retail sales Thursday Rebound expected
    ECB rate decision Thursday No change expected
    Australia house prices Friday Crucial to outlook for consumer confidence
    Eurozone PMI/retail trade Friday Retail trade has picked up, continuation would be +ve
    US employment report Friday Solid job/wage gains expected
    US non-manufacturing ISM Friday Slight weakening likely

    Recent FX Performance (%, +ve = USD decline)
    Currency Past 1 Week 1 Month 3 Months 1 Year
    EUR/USD 0.21 -2.24 -4.98 2.46
    USD/JPY 0.22 -2.94 -2.49 3.03
    GBP/USD -0.15 -4.43 -4.95 -0.88
    AUD/USD 0.94 -2.33 -2.98 9.67
    USD/CAD 0.94 0.33 -1.26 7.75
    USD/SGD -0.07 -1.36 -1.75 3.00
    USD/IDR -0.38 0.89 -2.34 -0.48
    USD/INR -0.18 0.00 0.38 3.63
    USD/ZAR -0.49 -7.28 -11.78 -1.50

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