Thursday December 18, 2008 - 20:50:07 GMT
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Westpac Institutional Bank - www.westpac.co.nz
FX Research - Morning Report
Morning Report Friday 19 December 2008
News and views
Non-USD currencies corrected their 5-day rallies sharply last night, the likely catalyst being US data releases which were not quite as weak as expected. Global equities were largely unchanged, and the VIX measure ofn risk-aversion fell again, -9% to 46. The broader global sentiment remains cautious, though, witness US 10yr treasuries reaching a new low in yield, 2.09%, and hard commodities falling back to 2008 lows - NYMEX oil down 4% to $38, and copper down 5%.
The NZD managed one last push to 0.6070 before taking a healthy, corrective rest at 0.59. Today's credit card and migration data should have no market impact.
The AUD followed EUR's lead and fell 2 cents from its European morning high of 0.7137. The AUD/NZD cross continues to range lower, now under 1.18.
EUR ran out of steam at 1.4720 and starting triggering stops, dropping below 1.42, in the second biggest correction of the evening (GBP's 1.56 to 1.49 was the biggest). European trade data, and German business climate readings were EUR-negative. The ECB initiated measures to stop banks hoarding cash. JPY was sold 3 yen to 90, BOJ intervention fears mounting.
US Philadelphia Fed factory survey remains weak at -32.9 in Dec. The headline improved from -39.3 in Nov but some of the key detail was weaker, including shipments and jobs. Orders were less weak but the prices measures continued to slide.
US initial jobless claims fell 21k to 554k last week, which coincided with the December non-farm payrolls survey week. The 4 week claims average was 544k last week, compared to 507k in the November payrolls survey week, an indication that Dec's jobs decline could be steeper than Nov's 533k fall. Also, in the week of Dec 6, continuing claims fell 47k to 4384k, still the second highest reading since the early 1980s.
US leading index down 0.4% in Nov. The index has not posted a gain since April. In Nov the biggest negatives were building permits, equities and jobless claims, with some offset from money supply and interest rates.
The European Central Bank said that as of 21 January, the rate of the marginal lending facility will be increased from 50 to 100 basis points above the interest rate of the main refinancing operation, and the rate of the deposit facility will be reduced from 50 to 100 basis points below the rate of the main refinancing operation, in an effort to discourage cash â€śhoardingâ€ť.
Euroland trade deficit EUR1.3bn in Oct. The sixth deficit in a row, confirming that full-year 2008 will see a trade deficit after 2007's surplus.
German IFO business climate index down from 85.8 to 82.6 in Dec. Weaker than expected, adding to concerns about the depth of the recession Germany (and Europe) is now in..
UK retail sales up 0.3% in Nov. These official figures once again contradict the very weak private sector sales surveys and contrast with the bankruptcy this week of one major retailer. We don't trust these figures.
Canadian retail sales down 0.9% in Oct. The outcome was weighed down by lower gasoline prices, but furniture, clothing and building material sales were also weak. Also, the Canadian leading index fell 0.7% in Nov, its third consecutive decline, the longest such string of falls since 2001.
The correction should continue today, but don't expect to see anything lower than 0.58. Traders are waiting to establish long positions ahead of Christmas, and an approach towards 0.63 is likely over the festive weeks ahead. Merry Xmas and best wishes for the new-year.
Westpac Strategy, 0800 922 239
With contributions from Westpac Economics
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 19 December 2008. 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 Westpacâ€™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. Â© 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
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