comments hit USD. Markets were quick to pounce on comments from Fed Governor
Bernanke that the āoutlook to economic growth has worsenedā and that Fed will āneed
to consider whether the current stance of policy remains appropriate.ā This was
taken as a clear sign that the Fed Governor has now fully about faced the
outlook for monetary policy as the credit crises continues to deepen and is now
prepared to cut rates. The USD weakened on the news, and EUR raced to a
high of 1.3739. Weakness in US stocks also added to the sell dollar story.
Concerns over the Morgan Stanley deal with Mitsubishi saw USD/JPY slammed to a
low of 101.29. And yen crosses reversed at least some of the Asian session
rally. AUD/JPY for instance hit a high of 75.76 after the RBA cut rates by an
unexpected 100bps and carry bounced. Weakness in US stocks saw some of those
gains reversed. AUD/JPY slid back to the 72.50 to 73.00 region. Other news saw
the UK Chancellor
Darling announce that a UK will reveal
the full details of a bank plan which will include āan element of
recapitalisationā tomorrow. The Chancellor noted that āThe Bank of England has
been putting substantial sums into the markets today and it is ready to do more
when that is neededā. European bank stocks were slammed first up with HBOS and RBS
down by 40% and Lloyds down by 13%. HBOS shares sit at about 50% of the price
implied by the Lloyds offer implying the City has very little confidence that the
deal will go through.
AUD and NZD saw some
reprieve as the focus was very much on Europe and the US. The AUD
hit a high of 0.7330 in early NY trading after a better US equity open
and news the Fed would soon allow high grade CP as collateral. However, the
lack of Central Bank follow through to the RBA move saw the AUD start to slide.
When āFed timeā came and passed with no change, the AUD slid back sub 0.7100
again. We currently sit just sub 0.7150. The NZD also saw gains, opening around
the 0.6350 level in NY as markets speculated on coordinated Central Bank rate
cuts. However, as cuts failed to emerge, the NZD also slid and we sit round the
0.6280 level. The continued weakness in US stocks and lack of Central Bank
action is likely to weigh on both currencies in Asia.
Fed chair Bernanke hints at rate cut. In a speech to US economists, he said that
the Fed āwill need to consider whether the current stance of policy remains
appropriateā, given the credit freeze, recession fears and diminishing inflation
concerns. In other news, the Fed announced further liquidity measures, this
time the creation of a Commercial Paper Funding Facility.
minutes of the 16 September FOMC meeting revealed that some members were
leaning towards a rate cut, though apparently not enough to vote for it. The
committee noted that āinflation risks appear to have diminishedā, and that a
policy response could be required if the strains on the financial sector threatened
the outlook for growth - which increasingly appears to be the case.
factory orders jump 3.6% in Aug. The first rise in orders this year ā actually
not good news if it provides the ECB with an excuse not to cut interest rates!
industrial production down 0.6% in Aug. IP has not posted a gain since February.
It is increasingly clear that the UK economy is
already in recession.
to enter fresh trades in the current volatile environment appears to be helping
NZD versus AUD but we suspect that data revealing another weak quarter in Q3
will leave the kiwi vulnerable to selling on key crosses in coming days and
weeks. NZD/USD looks to have further to fall.
Strategy, 0800 922 239
contributions from Westpac Economics
ā¢ NZ Q3 QSBO
Review (7 October)
ā¢ NZ PREFU
Review (6 October)
ā¢ NZ Weekly
Forex Outlook (6 October)
ā¢ NZ Q3
Employment Confidence Index (1 October)
ā¢ NZ PREFU
Preview (29 September)
ā¢ NZ Weekly
Forex Outlook (29 September)
ā¢ NZ Q2 GDP
Review (26 September)
ā¢ NZ Q3
Consumer Confidence (24 September)
papers/publications are available on Online Research on Westpac
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Tue 31 July 2018 AA JP- Bank of Japan A 06:00 DE- Retail Sales A 09:00 EZ- flash HICP/GDP AA 12:30 US- Core PCE Deflator A 14:00 US- CB Consumer Confidence Wed 1 Aug 2018 A Final Mfg PMIs AA 12:15 US- ADP Private Payrolls A 15:00 US- EIA Crude AA 18:00 US- Federal Reserve Decision Thu 2 Aug 2018 AA 11:00 GB- Bank of England Decision A 13:30 US- Weekly Jobless Fri 3 Aug 2018 A Final Services PMIs AA 12:30 US- Employment A 12:30 US/CA- Trade
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