Thursday October 16, 2008 - 20:30:36 GMT
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Westpac Institutional Bank - www.westpac.co.nz
FX Blog - Morning Report
Friday 17 October 2008
News and views
The lack of a firm lead from the DJIA left USD Index little changed in NY afternoon trade. The Dow had fallen >350pts early (hurt by the huge fall in US Sep industrial production) but recovered to flat to a touch weaker, taking many currency pairs with it. FX liquidity was very poor. There was ongoing talk of hedge fund liquidation, with Highland Capital reported to be closing funds totalling $1.5bn. NZD/USD traded a 0.6023 - 0.6195 range in London, sitting around 0.6080 in the NY afternoon, still watching the US equity lead.
AUD/USD traded only about a 2.5 cent range â€“ quiet by its recent standards â€“ and traded around 0.6750 as the DJIA returned to near flat. Spot gold sank about $40 to $800/oz in London, a startling slide traders suspected was by a stressed hedge fund rather than news-driven.
EUR/USD pushed up to a 1.3540 high in the London morning but retreated to the low 1.34s in NY, in rather inconclusive trade.
USD/JPY ground higher on the lack of market bedlam, drifting up to 100.80 in late NY.
US industrial news very weak. The Philly Fed plunged from its strongest reading for the year so far in September (3.8) to its weakest since the early 1990s in October (â€“37.5). The decline more or less matches the steep fall the index recorded in January 2001 when it fell from â€“8 to â€“37. That was surveyed straight after the Fedâ€™s intermeeting rate cut at the start of 2001 and effectively marked the beginning of the recession that year. Also, the September industrial production figures were very weak, with the monthly decline of 2.8% the steepest since late 1974. However the Fed made it clear that plant shutdowns ahead of hurricane Ike (â€“2.3 ppts) and the Boeing strike (â€“0.5 ppts) accounted for all that decline. Consequently the October IP data should show a steep rebound. However that rebound will occur too late for Q3 GDP growth, which will be weighed down more than we thought by this disruption to exports and business investment.
US initial jobless claims fell 16k to 461k last week but with some offices closed for the Columbus Day holiday the BLS had to estimate returns for eight states. The decline in new claims mostly reflects fewer job losses resulting from last monthâ€™s hurricanes, although the persistent up-trend in continuing claims suggests that underlying job market conditions continue to deteriorate.
US inflation was flat in September, constrained by a 0.6% fall in gasoline prices and a 0.9% fall in auto prices (which also held the core rate to a below trend 0.1%). Favourable base effects pulled the annual CPI back below 5% to 4.9% for the first month in four. Over the remainder of this year, the CPI should plunge dramatically, as those favourable base effects continue and combine with collapsing retail gasoline prices this year.
US NAHB homebuilders confidence dropped to 14 in October, the lowest since the survey began in 1985. The result likely reflects fears around the latest bout of financial market turmoil, coupled with a genuine tightening in credit conditions and slower activity.
The Bank of England announced a raft of measures intended to reduce the â€śstigmaâ€ť associated with banks seeking to access emergency borrowing from the Bank. These included introducing a new discount window which will accept illiquid securities as collateral in exchange for government paper; a reduction in the penalty rate on overnight funds; and delayed disclosure of the names of the banks accessing such funding.
At the margin, the lack of long NZD longs to be unwound still helps the currency versus AUD during risk aversion surges and vice versa. NZD/USD direction remains tied to USD safe haven demand which we are inclined to see waning in coming weeks after the slew of aggressive government action.
Westpac Strategy, 0800 922 239
With contributions from Westpac Economics
Date Country Release Last Forecast
17 Oct Aus Q3 Export Price Index 13.5% 7.5%
Q3 Import Price Index 1.4% 2.8%
US Sep Housing Starts â€“6.2% â€“4.0%
Sep Building Permits â€“8.5% â€“2.0%
Oct UoM Cons Sent (Prelim) 70.3 67.0
Jpn Aug Tertiary Activity Index 1.2% â€“0.8%
Eur Aug Trade Balance â‚¬bn â€“6.4 â€“5.4
20 Oct NZ Sep Electronic Card Transactions 0.8%
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