Trading news

S&P’s downgrades Australia’s outlook to negative, Switzerland: is FX intervention the only card up the SNB’s sleeve?

- Australia is one step closer to losing its triple-A sovereign credit rating as Standard & Poor’s downgraded the country’s long-term outlook from stable to negative amid mounting concern about fiscal imbalances

- AUD/USD continues to trade within its bullish channel: on the upside a resistance can be found at around 0.7648  while on the downside a support lies at 0.7286

- New Zealand's Grant Spencer declared that the central bank was considering a tightening of the Loan-to-Value ratio to limit upside pressure on the housing market from investors

- Like other commodity currencies, the Kiwi will remain highly sensitive to the global risk sentiment and developments in the Brexit story

- Switzerland: The SNB will continue to intervene in the FX market in order to maintain the EUR/CHF above 1.0800. This will require significantly large balance sheet increases to keep the currency stable.

- The SNB has been successful so far in preventing the CHF from appreciating too strongly post-Brexit. Yet, the central bank still remains largely under pressure.

 

It was a relatively quiet FX session in Asia with the pound sterling stabilising after the early week sell-off, the Japanese yen partially erasing yesterday’s losses and crude consolidating Wednesday’s gains. After a dreadful equity session in Europe, US equities started the day on firmer footing closing in positive territory and setting the tone for the Asian session. On Thursday, Asian regional equity markets were broadly mixed with Japanese and mainland Chinese shares trading in negative territory, while other Asian markets blinked green across the screen. The Nikkei 225 was down 0.67% as the yen strengthened, while the broader Topix index slid 0.66%. Chinese mainland shares fell 0.20%, while in Hong Kong the Hang Seng rose 0.75%, following Wall Street’s lead. Market participants are still fairly hesitant and continue to try to assess the implications of the United Kingdom’s decision to exit the European Union. In Europe, equities are set to start the day on firmer footing with most futures trading higher.

Australia is now one step closer to losing its triple-A sovereign credit rating as Standard & Poor’s downgraded the country’s long-term outlook from stable to negative amid mounting concern about fiscal imbalances. The agency declared “The negative outlook on Australia reflects our view that prospects for improvements in budgetary performance have weakened following the recent election outcome,”. Initially, the Australian dollar dropped 0.94% to 0.7467 but quickly recovered to 0.7520 as investors realised that ultimately this does not make much difference. S&P’s message is after all more of a warning to the future government reminding them that they must enhance the country’s fiscal strength. AUD/USD continues to trade within its bullish channel. On the upside a resistance can be found at around 0.7648 (high from June 23rd), while on the downside a support lies at 0.7286 (low from June 16th). 

The New Zealand dollar surged 0.80% in Wellington amid the RBNZ’s deputy governor comments about the housing market. Grant Spencer declared that the central bank was considering a tightening of the Loan-to-Value ratio to limit upside pressure on the housing market from investors. NZD/USD hit 0.7197 in late Asian session. The closest resistance can be found at 0.7241 (high from July 4th). Like other commodity currencies, the Kiwi will remain highly sensitive to the global risk sentiment and developments in the Brexit story.

Yann Quelenn, market analyst: “Switzerland: is FX intervention the only card up the SNB’s sleeve?: This morning, the June foreign currency reserves were revealed showing that it has increased by CHF 6.7 billion to CHF 608.8 billion. This of course indicates strong action from the Swiss National Bank to protect the domestic currency. We believe that the SNB will continue to intervene in the FX market in order to maintain the EUR/CHF above 1.0800. From our vantage point, this will require significantly large balance sheet increases to keep the currency stable.

The SNB continues to be on high alert for any developments concerning Brexit. Adding to the current uncertainty is the fact that Finland may hold a referendum to exit the EU. It is also important to note that the current European turmoil and European bank issues are increasingly driving money towards safe havens, especially the CHF. From our vantage point, the 1.0800 level seems to be a strong level of intervention especially as we can see that selling pressures on the CHF are stronger around that level.

Intervention should continue to be the main tool of choice to weaken the Franc at least for the time being as this will cause less disruption to the economy, even though, a rate cut towards -1% would not be such a big deal. To conclude, the SNB has been successful in preventing the CHF from appreciating too strongly post-Brexit. Yet, the central bank continues to remain largely under pressure.” ---

Today traders will be watching foreign currency reserves and CPI report from Switzerland; budget balance from Sweden; Halifax house price from the UK; industrial production from Norway and the UK; ADP unemployment change, initial jobless claims and crude oil inventories from the US.

Thursday, 07 Jul, 2016 / 8:35

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Source : http://swissquote-fx.com/en/research-and-analysis/

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