FX Research - Westpac Institutional Bank - Morning Report
ReportTuesday 18 December 2007
and views The
dollar continued the sharp losses seen on Friday night, though this time it
was almost alone among the major currencies. The NZD began a tentative recovery
yesterday, but came under pressure again later in the day as Asian equity
markets opened weaker. The upward trendline from the August lows was breached
around 0.7830, triggering a fresh wave of selling. NZD eventually bottomed out
at 0.7525, but continued to face steady selling early this morning. Further
stops are rumoured around 0.7500, which would open the way for a move back
towards the previous lows around 0.7440.
Australian dollar also began the overnight session weaker, but
found a base in the New York
session. The AUD was hit by a reminder of how the credit squeeze has spread:
shares in Centro Group, an owner of 700 US malls,
fell 73% after they issued a profit warning and said that they are having difficulty
in refinancing $1.3bn of debt. AUD fell as low as 0.8550 before stabilising in
a lacklustre offshore session.
data had little impact on the major currencies. The US
current account deficit was $178bn in the September quarter, slightly smaller
than expected. The Empire manufacturing survey was weaker than expected at 10.3
in December, but regional surveys are not a good leading indicator for the
broader ISM survey.
TIC data for October showed stronger than expected foreign demand for US
Treasuries, corporate bonds and equities. We suspect that this pickup in demand
for US assets will prove to be short-lived, as risky assets did well in October
but credit concerns reared their ugly head again in November.
Fedâ€™s term funding auction was held overnight, but a summary of the results
will not be published until Wednesday. So it remains to be seen how effective
this measure will be in easing liquidity pressures over year-end.
over the Christmas period and a softer tone to recent economic data are likely
to keep the NZD under pressure in the short term. Recent market movements are
the flipside of the â€˜hopeâ€™ trade: it was the hope of sharply lower interest
rates that supported asset values in the early part of this month, and with
uncomfortably strong US
inflation figures last week, those hopes have been scaled back.
the stronger US data
last week, our data surprise index has flicked over to a â€˜buy USDâ€™ signal for
the next three weeks. The normally positive relationship between US data
surprises and the US dollar appears to be reasserting itself, whereas in the
earlier stages of the credit crunch, better US data
instead meant an improvement in risk appetite and a rush back into carry
trades. Thereâ€™s also a strong seasonal bias to US data surprises, with releases
in the last few weeks of the calendar year consistently beating forecasts,
which supports our view of more USD
gains to come.
maintained for some time that the New
Zealand economy would hit a soft
patch in the second half of the year, and this weekâ€™s data on balance is likely
to reflect that. Today we have business confidence at â€“ a higher currency
and dashed hopes of early rate cuts suggest that confidence could tick lower
again. Thereâ€™s also the Governmentâ€™s half-year fiscal and economic update â€“
stronger revenues will leave plenty of scope to foreshadow tax cuts and
spending initiatives, though we expect that details will be thin on the ground.
Release Last Forecast NZ NZ
Govt Operating Surplus NZDbn 8.7 8.0 Dec
NBNZ Business Confidence â€“19.6% n/f Aus Q4
WBC-ACCI Survey of Indust Trends 56.4 n/f Dec
RBA Policy Meeting Minutes Nov
Merchandise Imports AUDbn 17.4 n/f US Nov
Housing Starts 3.0% â€“7.0% Nov
Housing Permits â€“7.2% â€“4.0% Eur
Oct Trade Balance â‚¬bn 3.9 3.0 UK Nov
CPI %yr 2.1% 2.4% Can
Nov CPI %yr 2.4% 2.5% Nov
CPI BoC Core %yr 1.8% 1.7% Nov
Leading Index 0.1% 0.1%
Research Papers/Publications â€¢ NZ
Weekly Forex Outlook (17 December) â€¢ NZ
Q3 GDP Preview (14 December) â€¢ NZ
Q3 Current Account Preview (13 December) â€¢ NZ
HYEFU Preview (13 December) â€¢ NZ
Q3 Terms of Trade (11 December) These
papers/publications are available on Online Research on Westpac
Institutional Bankâ€™s website (www.wib.westpac.co.nz)
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