and views It
was a fairly listless overnight session for the New Zealand
dollar. The currency openedoffshore dealings around USD0.7820
and saw an early spike to USD0.7868 but it ran intogood offers and slipped back
into a USD0.7830/55 range for the remainder of offshore trading. The currency
was relatively muted despite large swings in other asset markets overnight.
Risk appetite took a hit with the Dow Jones shedding 170pts overnight led by weakness
in the financials after S&P downgraded the debt ratings for several large
banks. Sentiment was already on the backfoot following the earlier announcement
Bradford and Bingley (a major buy-to-let lender) that the outlook for the UK
property market remains grim. The RBNZâ€™s OCR Review later this week and a light
bid tone to the NZD/AUD cross overnight probably helped insulate NZD. The NZD
opens local trading at USD0.7850.
Australian dollar was not as immune as the NZD overnight. The
AUD opened offshore trading on the backfoot in the wake of a disappointing
earlier retail sales release (-0.2% vs +0.2% expected), shedding about 20pts in
early trading. But long term buyers just ahead of USD0.9500 stepped up and the
AUD rebounded all the way back to 0.9560/70. These gains proved shortlived
though with deepening US equity market losses sending the AUD back toward
0.9530/40 in afternoon NY trading.
fell hard overnight, closely tracking US equity markets. From
offshore opening levels around 105.40 USD/JPY tumbled to lows near 104.00.
traded through a 100pt range overnight but finished the session
close to flat. Early weakness from around 1.5560 to lows of 1.5490 coincided
with weaker oil prices but as US
markets opened and equities slipped EUR recouped its losses. News that S&P
cut the debt ratings of several US
banks saw EUR spike to 1.5590 but it finished the session well off these highs
May manufacturing ISM rose to its highest since January, still
below the neutral 50 level but at 49.6, only just. Indeed with production
comfortably back above 50 and orders up more than 3 pts (but still just below
50) the overall report suggests manufacturing is stalled, but not much worse
than that. The orders recovery loosely backs the strong capital goods component
of the April durable goods report. Exports remain the standout activity component
of the ISM, thanks to the weak US dollar and continued growth in many US
trading partner economies. Jobs remain the weak point. The high prices
component is of course a reflection of rapid commodity price gains.
construction spending was weak at the start of
April though held up somewhat by continued gains in the non-residential sector,
which suggests that the upward revision to that component of Q1 business
investment (revised from â€“6.2% to +1.1% annualised last week) might still have
some legs heading into Q2.
factory PMI was revised up slightly from 50.5 to 50.6
in May. That is still a new cyclical low for the series.
factory PMI slipped further in May to the â€śneutralâ€ť 50
level, though history actually shows that a reading of around 53 is consistent
with flat activity as recorded by the official industrial production data. So
this result implies the factory sector is already slipping into recession.
mortgage lending figures were dire: the number of new
loans fell to just 58k, lower even than at any time during the housing slump in
the early 1990s. That reflects, we suspect, both subdued demand for new
mortgages, and rationed supply due to the credit crunch, and is likely to put
more downward pressure on house prices, which are already falling in annual
terms. Consumer credit growth slowed too. In the past data like these would
have had the Bank of England cutting rates, but this week a cut seems unlikely,
given high headline inflation, rising inflation expectations and the Bankâ€™s
stated acceptance that the economy needs to slow to bring inflation back into
line with the 2% target by the end of this decade.
NZD is in a holding pattern this week ahead of the RBNZ announcement on
Thursday. On that, our economists view the risks as being skewed towards a more
hawkish tone, which would likely see the NZD higher, at least on the day.
Gordon, Market Strategist, Wellington,
Ph: (04) 470 8266 With
contributions from Westpac Economics and Westpac Strategy
Release Last Forecast Aus
Apr Dwelling Approvals â€“5.7% â€“2.0% Q1
Current Account Balance, AUDbn â€“19.3 â€“19.7 Q1
Net Exports Contribution to GDP, ppts â€“1.0 â€“0.7 Q1
Public Spending 2.4% 0.9% RBA
Policy Announcement ()
7.25% 7.25% US
Apr Factory Orders 1.3% 0.5% May
Auto Sales mn annâ€™lsd 14.4 14.3 Eur
Apr PPI %yr 5.7% 6.2% Q1
GDP Revision 0.7% a 0.7% UK
May PMI Construction 46.1 45.8 May
Consumer Confidence 70 65
Research Papers/Publications â€˘
RBNZ MPS Preview (29 May) â€˘
NZ Weekly Forex Outlook (26 May) â€˘
NZ Budget 2008 Review (22 May) â€˘
NZ Weekly Forex Outlook (19 May) â€˘ Housing equity withdrawal and its impact (16 May) â€˘
NZ Budget 2008 Preview (15 May) These
papers/publications are available on Online Research on Westpac Institutional
Bankâ€™s website (www.wib.westpac.co.nz)
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