Monday March 31, 2008 - 21:21:43 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Tuesday
1 April 2008
dollar was weaker again overnight, slipping from 0.7950 before finding
support below 0.7850. The sharp fall in yesterdayâ€™s business confidence survey
encouraged real money accounts to add to their short NZD positions, and selling
out of Asia was also noted, despite the launch of
several new investment trusts that tend to invest a portion in NZD.
dollar also traded heavy, though it did outperform the NZD, with the cross
rate falling to a three-week low of 0.86. Commodity prices were weaker across
the board, with â€˜softâ€™ commodities hit particularly hard, but gold and oil were
down sharply as well.
benefited from higher than expected CPI figures, briefly attempted a run at
its lifetime high of 1.59 before pulling back below 1.58. The yen was
inevitably dominated by financial year-end flows, with a large USD/JPY buy
order pushing it back above 100 at the start of the Tokyo
session. The pound rode on the euroâ€™s short-lived bounce but otherwise
Chicago PMI business
barometer rose to 48.2 in Mar, up from a six-year low of 44.5 in Feb. This
reinforced a general pattern amongst regional surveys
â€“ that while they were negative in Mar they were not as negative as in Feb. The
national manufacturing ISM, to be released tomorrow, may thus prove more
resilient than the market expects (market expectation of 47.5 vs 48.0 in Feb).
The Chicago PMI showed that new orders advanced after two months of decline
(53.9 in Mar vs 48.8 in Feb) and that production was broadly stable at 50.4.
Employment was weak at 44.6 but up from an extreme of 33.5 in Feb. However, the
order backlog continued to deteriorate (36.8 vs 38.3 in Feb) and inventories
are being scaled back (42.0 vs 46.0 in Feb). The Milwaukee PMI fell into line with
the picture of a contracting manufacturing sector, with the index down 6pts to
47 in Mar.
CPI accelerated to 3.5%yr in Mar, the fastest pace in almost 16 years, boosted
by higher food and energy prices. With inflation trending higher (up from 1.8% in
mid-2007) and well above the 2% target, the ECB will remain concerned. This
argues against an imminent rate cut. We donâ€™t expect the ECB to start cutting
rates until June. The good news is that the spike in inflation is likely to be
temporary. Notably, core inflation remains steady and at 1.8% in Feb was
fractionally below the 12mth average of 1.9%. Detailed CPI data for Mar will be
released on 16 Apr.
M3 growth moderated to 11.3% in Feb, down from a peak of 12.4% in Dec. Loan
growth to the private sector also moderated a little, easing to 10.9% in Feb from
11.1% last month. Even so, for the ECB, both M3 and loans are expanding at a relatively
European sentiment surveys covering the household and business sectors were
mostly steady in Mar. Consumer confidence held at â€“12, which compares with â€“2
in mid-2007. Although business confidence held at 0, prospects for future
production continued to moderate, easing 2pts. By contrast, past production
rebounded 3pts. The business climate index showed some resilience in Mar,
edging up from the Feb low to be at 0.80. That still represents a moderation
from conditions at the end of 2007, when the 3mth avg was 0.93 and from mid
2007, when the index was tracking at 1.42. The outlook, in our view, is for
more subdued growth as the various negatives impact (US slowdown, tighter credit
conditions, rising energy costs and appreciating euro).
New Zealand dollar is increasingly coming under fire as the economic outlook softens.
The positives of dairy cash, fiscal stimulus and the tight labour market will still
provide support for the economy over the year, but a lot of the negatives are converging
all at once. The key data over the next few weeks â€“ more confidence surveys,
and house sales â€“ are unlikely to turn market sentiment around. And with the RBNZ
indicating that rate cuts are still a distant prospect, the path of least
resistance is a weaker currency. The ongoing weakness of the US dollar is the
main barrier to a substantial move lower in NZD.
Release Last Forecast
RBA Policy Announcement 7.25% 7.25%
Mar ISM Manufacturing 48.3 48.0
Construction Spending â€“1.7% â€“1.2%
Vehicle Sales 15.4M 15.3M
Q1 Tankan Large Manuf. 19 15
Tankan Large Nonâ€“Manuf. 16 12
Mar PMI Manufacturing (F) 52.0a 52.0
Unemployment Rate 7.1% 7.1%
Mar Unemployment change â€˜000 â€“75k â€“45k
Mar PMI Manufacturing 51.3 51.0
Feb Industrial Product Prices 0.9% 0.8%
Weekly Forex Outlook (31 March)
Q4 GDP Review (28 March)
Q4 Current Account Review (27 March)
Q1 Consumer Confidence (26 March)
Weekly Forex Outlook (25 March)
Q4 GDP Preview (19 March)
papers/publications are available on Online Research on Westpac
Bankâ€™s website (www.wib.westpac.co.nz)
Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division).
Information current as at 14 November 2007.
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situation or needs. Australian customers can obtain Westpac's financial
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Corporation. Past performance is not a reliable indicator of future
performance. The forecasts given in this document are predictive in character.
Whilst every effort has been taken to ensure that the assumptions on which the
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