Sunday October 18, 2009 - 19:58:13 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Monday 19 October 2009
News and views
US equities fell on Friday, disappointing Q3 earnings reports from bellwethers General Electric and Bank of America, and a sub-consensus University of Michigan's consumer confidence survey weighing on investor sentiment. The S&P500 dropped at the open, and spent the remainder of the session recovering about half its losses to close -0.8%. Banks fared worse, down 3.4%. Oil followed on from Thursday's notable breakout, gaining another 1.2%, but copper (-0.5%) only ranged sideways. US 10yr notes gained by 6bp overall, after initially selling off on slightly better industrial production and capacity utilisation data. Treasury data showed foreign net buying of US treasuries increased between July and August, Japan and Russia increasing their holdings, but largest holder China reducing.
The US dollar was slightly firmer, spending most of thee London session recovering to 75.90 before slipping back to 75.60 in NY. EUR again struggled to reach 1.50, reversing at 1.4967 down to settle at 1.4900. Much maligned GBP has become much loved, posting its fourth day of gains and outperforming other currencies, rising to 1.6400 and settling at 1.6350. The dollar gained against the yen again, to 91.30. Bearish key reversal days were formed in both the down-under currencies.
AUD reversed course during-Sydney at 92.70 and fell to 91.24 in London before partially recovering to 91.80. Trade Minister Crean's comments rationalising AUD strength were atypical of global official-speak.
NZD reversed from 0.7496 to 0.7253, settling at 0.7400. AUD/NZD ranged slightly higher after the Sydney close to 1.2380 and 1.2420.
US industrial production rose 0.7% in Sep, and Aug was revised up from 0.8% to 1.2%. This solid factory story was driven by the third monthly gain in auto production, solid defence related production and steady business equipment output. Capacity utilisation rose from 69.9% to 70.5%.
Net purchases of long term US financial assets increased to $29bn in Aug from $15bn in July, with increase Japanese investor participation and further accumulation of Treasuries by foreign investors key features of the latest month. On this measure, the US has not seen a (net) capital outflow since May.
US Uni of Michigan consumer sentiment fell from 73.5 to 69.4 in Oct. The preliminary Oct report saw about half of Sep's 8 pt jump given back, mainly due to a fall in expectations, although the current measure was also down a little. Inflation expectations jumped in Oct, which may reflect the recent upswing in oil prices which has just started to feed through to higher retail gasoline prices.
US budget deficit $1.42trn in FY08/09. Sep data released over night confirmed the full year deficit was three times as large as the FY07/08 deficit of $455bn. Plunging tax receipts during the recession and the huge sums spent bailing out institutions and otherwise rescuing the economy were the key factors at play.
Euroland trade balance EUR1.0bn in Aug, a much narrower surplus than July's EUR6bn, but still the fifth month running out of deficit.
Canadian inflation edged lower to -0.9% yr in Sep, and core inflation (BoC measure) eased from 1.6% yr to 1.5% yr.
AUD/USD and NZD/USD outlook today: The trends remain upwards, but we should respect Friday's key reversal signals and watch for a temporary pullback today. AUD has support at 0.9090, NZD at 0.7310.
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