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Wednesday May 7, 2008 - 23:24:43 GMT
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FX Research - Morning Report

Morning Report  Thursday 8 May 2008

News and views
New Zealand dollar was consistently sold overnight as the US dollar recovered against all of the major currencies. The NZD was also weighed down yesterday by the RBNZ’s Financial Stability Report, which highlighted the downside risks to the New Zealand economy if the global slowdown turned out to be more protracted. The RBNZ also expanded its liquidity facilities (as have many central banks in recent months), which saw interest rates ease around 8bp lower, making it slightly cheaper at the margin to sell the NZD. Later in the day, Finance Minister Cullen’s comments that households are under pressure, and that slowing growth will mean less revenue available for tax cuts, also saw the NZD lower.

The Australian dollar fared only slightly better, with buying against the NZD providing some support. The improvement in investor risk appetite that drove the previous day’s gains was absent this time, with oil at a fresh record high of $123.80, metals prices lower, and US equities down nearly 2%.

US productivity rose 2.2% annualised in Q1. Productivity growth picked up in Q1 as a slightly less weak pace of nonfarm output growth was achieved with a steeper fall in hours worked than in Q4. Unit labour cost growth slowed in the quarter and rose just 0.2% over the year to Q1, down from 4.3% in the year to Q1 2007. That in turn will take pressure off core inflation, even as headline inflation measures remain elevated.

US pending home sales fell 1.0% in March, less than we expected, but the February decline was revised steeper by almost 1ppt. Sales on this measure have fallen in four of the past five months, that is, by 7.6% since October last year. Existing home sales (which are completed pending sales) are only down 2.5% over that same period, and indeed the Q1 data are vaguely suggestive of a base being formed. But the pending news suggests further weakness ahead for existing home sales, which would be consistent with the ongoing downtrend in new home sales.

But while US data is starting to turn out more mixed, European data is more clearly turning lower. Eurozone retail sales fell 0.4% in March, much more than expected and  the largest monthly fall on record. German factory goods orders fell 0.6% in March, their  fourth consecutive monthly decline. This normally volatile data series has not seen such a string of negatives since 1992. Annual growth in orders slowed to –5.0% yr, the equal slowest since 2001. Both domestic and foreign orders fell in the month and in annual terms. This continues the recent run of weaker data which suggests the Euroland economy will slow further in the second half of this year.

UK manufacturing production fell 0.5% in March (possibly enough to contribute to a downward revision to Q1 GDP growth), and consumer confidence recorded a steep loss in April, adding to the weight of evidence that points to a slowing UK economy. But the shop price index accelerated in April, due to a further acceleration in food prices. This suite of data neatly sums up the key issues that the Bank of England monetary policy committee will be debating this week: a deteriorating economic outlook vs accelerating inflation. As a result, talk of a back-to-back rate cut by the BoE tonight seems premature, but we still expect a further cut in June.

With the New Zealand economy set for a sharp slowdown this year, owing at least as much to domestic factors as to the turmoil offshore, the NZD is likely to lag among the major currencies. NZ interest rates now have the steepest implied easing track among the major economies, a profile was given further support by the RBNZ’s dovish statement. However, this underperformance is more likely to be captured against a basket of currencies than against the US dollar alone.

Risks around today’s employment figures appear to be skewed: a stronger than expected number, beyond an initial bounce in the NZD, is likely to be dismissed as a lagging indicator, while a weaker read is likely to be taken as further confirmation of the slowdown. Our pick of 0.2% employment growth is mild but above the market median, and would be just enough to keep the unemployment rate at its record low of 3.4%.

Michael Gordon, Market Strategist, Wellington, Ph: (04) 470 8266
With contributions from Westpac Economics and Westpac Strategy

Events Today
Country Release Last Forecast

NZ Q1 HLFS Employment 1.1% 0.2%
Q1 HLFS Unemployment Rate 3.4% 3.4%
Aus Apr Employment chg 14.8k 12k
Apr Unemployment Rate 4.1% 4.0%
US Mar Wholesale Inventories 1.1% 0.8%
Initial Jobless Claims w/e 3/5 380k 375k
Apr Chain Store Sales %yr –0.5% –
Eur ECB Rate Decision 4.0% 4.0%
Ger Apr Industrial Production 0.4% 1.0%
Mar Current Account EURbn 15.4 16.2

UK BoE Meeting 5.0% 5.0%
Can Apr Housing Starts 243k 225k

Latest Research Papers/Publications
• ETA of ETS delayed (6 May)
• Q1 Wage Review (5 May)
• NZ Weekly Forex Outlook (5 May)
• Q1 labour market preview (1 May)
• NZ housing demand/supply balance (28 April)

These papers/publications are available on Online Research on Westpac
Institutional Bank’s website (


Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 14 November 2007. All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking 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 forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.



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AA: Major, A: High, B: Medium

Tue 31 July 2018
AA JP- Bank of Japan
A 06:00 DE- Retail Sales
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