Thursday September 10, 2009 - 21:05:04 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report 11 September 2009
News and views
Markets viewed the decline in US jobless claims and the larger trade deficit as further signs of recovery and pushed equities higher. The S&P500 broke above late August resistance at 1040 to post a 2009 high at 1044, where it closed (+1.0%). Oil futures consolidated around $71-72, but copper was again subject to rising stockpiles, falling 1.5%. US treasuries went their own way, the robust 30yr auction (post-March yield low of 4.24%) capping a healthy week for issuance and helping 10yr notes rally from 3.50% (Sydney close) to 3.33%. Treasuries are attracting those investors who don't buy into the recovery story, as well as the enormous volume of global liquidity which has been pumped into the economies.
The US dollar (index) nudged to a new 2009 low at 76.70, next targeting September 2008 support at 75.90. Similarly, EUR made a new 2009 high at 1.4613. GBP posted a decent gain from 1.6481 to 1.6687, but has room to catch up to the EUR's performance this year. The BoE meeting last night did not result in any increase in quantitative easing, removing one headwind for sterling. USD/JPY is poised to break below 91.60 support, having peeked at 91.44 midday-London.
Still affected by yesterday afternoon's weak employment report, AUD continued lower from its Sydney closing level (around 0.8600) to 0.8546, but then rebounded to 0.8644.
NZD flew from its evening low of 0.6926 to make a 2009 high of 0.7045. AUD/NZD formed a key reversal day (downwards), the earlier RBNZ boost countered later by the Australian data, and it hovers near its 1.2258 overnight low.
US trade deficit widens from $27.5bn to $32.0bn. The highest deficit in six months reflected a 4.7% surge in imports which swamped a 2.2% exports rise. Auto imports and exports were especially strong, a function of "cash for clunkers", but the gains pretty much across the board for both sides of the ledger, a clear sign that global trade is on the rise again.
US initial jobless claims down 26k to 550k and continuing claims down 159k to 6088k in the previous week. With no obvious distortions at play, these outcomes point to a much slower pace of deterioration in the labour market in late August and early September.
Japanese machinery orders fell 9.3% in July. This is a timely reminder that global capacity utilisation is still around historic lows and equipment producers still have a long, hard road ahead. The re-stocking phase underway globally does not create demand for new plant, it just raises factory usage to levels midway between the peak and the trough. Also today, the corporate goods price index was flat in August, to leave the annual rate unchanged at -8.5%.
The Bank of England left rates on hold at 0.50% and continued with its GBP175bn asset purchase program, with no extension. The statement included no other commentary. On the data front, HBoS reported house prices up 0.8% in Aug after 1.2% in Jul, the first back-to-back gains for this series in two years.
The Bank of Canada left rates on hold at 0.25% and maintained the conditional commitment to keep rates unchanged until the middle of next year. The statement included the concern that "persistent strength in the Canadian dollar remains a risk to growth and to the return of inflation to target." On the data front, the trade balance deteriorated from a modest C$38mn surplus to a C$1.4bn deficit in July.
AUD and NZD outlook today: AUD and NZD remain the flag-bearers for risky currencies. Our tactical recommendation is to buy on dips, particularly near the 0.8500 and 0.6900 key support levels. Today's food price data shouldn't trouble the markets.
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. 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 unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.
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