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Tuesday June 10, 2008 - 23:56:53 GMT
Westpac Institutional Bank - www.westpac.co.nz

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Foreign Exchange Research - Morning Report

Morning Report Wednesday 11 June 2008

Newsand views
The New Zealand dollar came under heavy selling pressure overnight hitting 4 ½ month lows just above 0.7500. Offshore markets needed little encouragement in taking the USD higher following Chairman Bernanke’s earlier hawkish comments that he will “strongly resist” inflation pressures and that the “risk of a substantial downturn appears to have diminished”. US interest rate futures are now aggressively priced, giving a 60% chance of a Fed hike as soon as their 5 August meeting. The USD also benefited overnight from US Treasury Secretary Paulson’s reiteration of his “never say never” comments on FX intervention. Amid broad USD gains the NZD slipped from offshore opening levels near 0.7560 to lows just above 0.7500. A couple of US investments were reportedly substantial buyers ahead of 0.7500 protecting a large barrier. The NZD starts the local session at 0.7527.

The Australian dollar proved to be a little more resilient than the NZD thanks to large Asian account demand but still slid around 60pts in offshore trading to session lows near 0.9442.

EUR/USD downside continues to gather steam with the pair falling 150pts in overnight trade to session lows near 1.5441. So far this week EUR has now shed almost 3 1/2 cents thanks to hawkish Fed speak and strong defence of the USD from Treasury Secretary Paulson.

USD/JPY broke up to fresh 3mth+ highs overnight at 107.45. US equities slipped around 80pts from their highs in afternoon US trading but USD/JPY was non-responsive, instead taking its cue from broad USD gains.

US trade deficit $60.9bn in April. The trade deficit widened by $4.9bn, due entirely to higher oil prices, which added $5bn to the import bill. That meant imports jumped 4.5%, overwhelming a decent 3.3% jump in exports.

US IBD/TIPP economic optimism falls from 40.3 to 37.4 in June. This further slide in confidence was led by concern about respondents’ personal financial outlook, though government policies and the economic outlook also impacted to the downside.

More hawkish comments from Fed’s Fisher. The Dallas Fed chief said that the credit markets are now in “much better shape” and described the past year’s turmoil as a “spring shower” not a “storm”! However he said he was not advocating a rate rise.

European industrial production looking stronger in April. In Italy IP rose 0.7% and in France it was up 1.4%, both upside surprises that might see expectations of a Q2 European GDP growth slowdown moderated somewhat.

UK industrial production up 0.2% in April. This beat expectations of a flat outcome although the lacklustre manufacturing
sub-component rise of 0.1% was about as expected. In other news the British Retail Consortium reported an unexpected jump in retail activity in May, although the Royal Institute of Chartered Surveyors remained very pessimistic about house prices (net balance of 93% reporting declines, just slightly improved from 95% in April).

Bank of Canada on hold at 3.0%. A big surprise given that GDP contracted in Q1. The statement revealed less pessimism re the US economy, and concern about the inflation impact of higher commodity prices. Policy is now “appropriately accommodative” suggesting that rates are now on hold for the near-term. Markets are now extrapolating this surprise into other jurisdictions by pushing yields higher. In other news, the Canadian trade surplus narrowed from $C5.7bn to C$5.1bn in April.

Outlook
A clear break of 0.7500 is likely to pave the way for a test of this year’s lows of 0.7385. But, NZ’s Q1 terms of trade due later this morning probably won’t be the catalyst. NZ’s terms of trade is likely to show a strong increase given it is yet to fully reflect the surge in dairy prices over the last 18 months. Beyond that we expect the NZD to continue to trade with a heavy tone. Yield support for the NZD continues to wane as heightened RBNZ easing prospects clash with heightened FOMC tightening prospects. The 10 yr NZD-USD swap differential narrowed to 257bp overnight, its least NZD supportive levels since October last year.

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 Terms of Trade 2.9% 2.5%
Aus Jun Westpac-MI Consumer Sentiment 89.8 – US
May Federal Budget $bn 159.2 –165
Fed Beige Book
Fedspeak: Kohn, Kroszner, Bullard
Jpn Q1 GDP 2nd Estimate saar 3.3% 3.8%
May Corp. Goods Prices %yr 3.7% 4.0%
Apr Current Account ¥bn 2097 1826

UK May Unemployment chg 7.2k 10.0k
Apr Trade Balance £bn –7.4 –7.3
Can Q1 Capacity Utilisation 81.8 81.0
Apr New House Prices 0.2% 0.2%

Latest Research Papers/Publications
NZ Agribiz June 2008 (9 June)
•NZ Weekly Forex Outlook (9 June)
•RBNZ MPS Review (5 June)
•NZ Weekly Forex Outlook (3 June)
•RBNZ MPS Preview (29 May)

These papers/publications are available on Online Research on Westpac Institutional Bank’s website (www.wib.westpac.co.nz)

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 www.westpac.com.au 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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Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



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  • POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.

  • POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.



  • POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.

  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.



  • POTENTIAL PRICE RISK: Medium Thu-- 01:30 GMT AU- Employment. Top economic indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 02:00 GMT CN- GDP. Top economic indicator.


  • POTENTIAL PRICE RISK: HIGH Thu-- 08:30 GMT GB- Retail Sales. Top consumption indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 12:30 GMT US- Weekly Jobless. Employment Indicator.



John M. Bland, MBA
co-founding Partner, Global-View.com

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