FX Research - Westpac Institutional Bank - Morning Report
12 December 2007
Zealand dollar NZD
convincingly breaks 78c ahead of FOMC. Despite confirmation of
further sub-prime losses, carry currencies performed well yesterday. The NZD
convincingly broke 78c to trade its highest levels in a month during the local
session at 0.7848. In data releases yesterday a boost from dairy income saw an
increase in term of trade, while the REINZ reported a softer housing market. In
overnight trade the NZD peaked at 0.7858, before drifting lower to 0.7830, with
the market awaiting this morningâ€™s FOMC decision
higher as AUD/JPY trades three week highs. The AUD also traded
higher yesterday, rallying from a low of 0.8843 to peak 0.8889. Australian
business conditions remain at strong levels, despite the NAB November survey
reporting an easing in both business conditions and capacity utilisation. Carry
trade demand boosted AUD/JPY to its highest level in three weeks above 99.00,
despite the announcement of a further $15bn of sub-prime write-downs.
suffers setback on poor data. The USD fell from a one month
high versus the yen on speculation the Fed will lower its benchmark interest
rate today and again early next year amid a slowdown in the economy. Earlier
the euro fell to 1.4655 following a report showing investor confidence in Germany
dropped to the lowest in almost 15 years. However this did not stop hawkish
euro rhetoric from the head of ZEW who called for more rate hikes next year.
This saw euro recover back above 1.4700 as we go to print this morning. GBP was
treading water for much of the dayabove
the 2.0470 mark however suffered a setback late in the session with some heavy
selling knocking it down to a low of 2.0380. The selling was due to a fix in London.
data and events US
Fed cuts the repo rate 25bp to 4.25%. The decision was not unanimous,
with Boston Fed's Rosengren preferring a 50bp cut. The statement noted that
"economic growth is slowing, reflecting the intensification of the housing
correction and some softening in business and consumer spending" and that
"strains in financial markets have increased in recent weeks".
However, concerns about inflation were again highlighted." The FOMC
remarked that the outlook is increasingly uncertain, and reassured markets that
they "will act as needed to foster price stability and sustainable economic
growth.â€ť What stands out is the absence of any clear future policy bias. The
FOMC cut rates 25bp, with dissent in favour a 50bp cut, yet there was no
explicit mention of the downside risks to future growth. Clearly they are seeking
to keep all their options open re future policy action. The statement and decision
disappointed the market, who had been hoping for a more accommodating tone.
IBD/TIPP economic optimism rises from 43.8 to 44.4 in Dec, its
first rise in four months. This measure of consumer optimism contrasted with
last weekâ€™s fall in the preliminary Dec reading of Uni of Michigan consumer
sentiment. In related news, in the first retail week of Dec, chain store sales
rose just 0.2%, hardly reversing any of the prior weekâ€™s 2.0% plunge. Also, the
Redbook retail average started Dec with a â€“0.5% gain, suggesting a renewed
softening in consumer activity following Novâ€™s apparent modest recovery from a
wholesale inventory accumulation stalled in Oct (and
would have been negative were it not for petroleum prices rising) and Septemberâ€™s
previously reported 0.8% rise was revised back to 0.6%. That hints at a slight
downward revision to Q34 GDP growth but more importantly adds weight to our
view that inventories will be a significant drag on Q4 GDP growth.
ZEW analystsâ€™s survey down from -32.5 to -37.2 in Dec. German
analystsâ€™ became even more pessimistic re the outlook (over the next six
months) for the German and broader Euroland economies this month, and their assessment
of the current situation was also downgraded. The headline German expectations number
reached a 14 year low.
trade deficit narrowed in Oct to ÂŁ7.1bn from an upwardly revised ÂŁ8bn
in Sep, an all-time record. These data are currently â€śsent to Coventryâ€ť due
to the impact of VAT fraud which overstates various components of the report to
a significant degree and makes the bottom line result unreliable. So reported
for the record only.
Release Last Forecast Aus
Dec Westpac-MI Consumer Sent â€“4.2% n/f RBA
Deputy Gov. Battellino US Oct
Trade Balance $bn â€“56.5 â€“55.8 Nov
Import Price Index 1.8% 1.8% Nov
Federal Budget $bn â€“73.0 â€“72.3 Jpn
Nov Corp. Goods Prices %yr 2.4% n/f Oct
Current Account ÂĄbn 2242 n/f Eur
Oct Industrial Production â€“0.7% n/f UK Nov
Unemployment châ€™ â€“10k â€“8k Can
Oct Trade Balance C$bn 2.6 2.2
Research Papers/Publications â€˘ NZ
Q3 Terms of Trade (11 December) â€˘ NZ
Weekly Forex Outlook (10 December) â€˘ RBNZ
MPS Review (6 December) â€˘ NZ
Weekly Forex Outlook (26 November) â€˘ NZ
Interest Rate Focus (20 November) â€˘ NZ
Weekly Forex Outlook (19 November) â€˘
Outlook for New Zealand house
prices (15 November) These
papers/publications are available on Online Research on Westpac
Institutional Bankâ€™s website (www.wib.westpac.co.nz) ajor Currenciesustralian Dollarew Zealand Dollar
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Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
John M. Bland, MBA co-founding Partner, Global-View.com
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