Monday June 22, 2009 - 20:42:13 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report 22 June 2009
News and views
The US dollar was supported during last night's session from several fronts. The World Bank yesterday revised its 2009 global growth forecast down to -2.9% from March's 1.7%. The IMF later said Lithuania faced challenges, and that Latvia's situation now is much worse than when their program was designed. US equities broke down, the S&P500 below 900 for a 2.7% loss on the day, financials losing 5.5%. Credit spreads widened accordingly, but outperformed equities. More stories on China's commodity inventory building nearing an end hurt commodities and added to the negative risk tone. Wednesday's FOMC meeting is eagerly awaited for its signals regarding rates, QE, and therefore the dollar.
The EUR fell from a high of 1.3960 to 1.3825, and is currently at 1.3870. The ECB's Nowotny said they would likely keep interest rates steady into 2010. The JPY was steady around 96, JPY selling for Toshin fund investments picking up.
AUD is well below its 0.8095 yesterday high, at 0.7880. Political friction continued in Canberra continued, the opposition refusing to back some constitutional and tax related initiatives.
The NZD is almost 1.5 cents lower at 0.6300, yesterday's positive tone to the data releases ignored in favour of global factors.
No US data to report.
Japanese Q2 MOF/Cabinet office business outlook survey. The headline large firms conditions index fell sharply to -22.4, with large manufacturers at -13.2 and non-manufacturers at -27.8. Manufacturers are also relatively more optimistic on the outlook, although all firms are expecting some improvement in conditions over the next two quarters. This is a well respected survey with a sample size that stands comparison with the Tankan. Small firms are hurting disproportionately, which is the usual way of things in the Japanese system.
German IFO business climate index rises from 84.3 to 85.9 in June. This third consecutive rise in the IFO survey of 7000 German executives was driven entirely by expectations; the current situation index fell to a new record low. This suggests that the economy is still in a deep slump, but that there is decreasing pessimism in the business sector that things will continue to deteriorate at the current pace. It is not really plausible to put a more positive spin on it than that.
UK house prices down 0.4% in June. The Rightmove index tracks asking prices, which rose for four months running between February and May by a cumulative 6+%. Notwithstanding the modest June pull-back, it seems that vendors are sensing that the UK housing market might be finding its feet once again - which gels with anecdotal reports that gazumping (when an agreed sale falls through due to a higher price being offered by another buyer) is back! That said, the scarcity of finance and worries about unemployment are big negative factors for housing that will persist for some time yet. Further June house price updates from lenders and real estate agents - all giving different spins on the situation - are due later this week.
The World Bank forecast a 2.9% contraction in the global economy this year, revised from a 1.7% decline previously projected. This story received considerable attention overnight, although the main numbers were in a WB press release back on June 11. The WB view contrasts with the IMF forecast of -1.3% for the world in 2009, with an upward revision apparently due shortly, and Westpac's -1.5% global growth view.
The NZD remains on track to target around 0.55 in the months ahead, having failed to break beyond 0.66, despite some upbeat NZ data yesterday. The multi-month outlook for the USD is looking positive, according to our proprietary models, but is shy of generating a long-USD trade signal.
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