Monday October 26, 2009 - 20:20:47 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Tuesday 27 October 2009
News and views
The US dollar followed through from the previous day's minor reversal signal, bouncing on US and European equities' weakness. Concerns that an $8,000 tax-credit for first time homebuyers in the US will be phased out dented confidence in equities, the S&P500 currently down 0.8%, and the Vix risk-aversion barometer up 10%. Financials and banks were hit harder by speculation Bank of America may be required by the government to raise $45 billion in equity before it's allowed to exit the TARP program, and some more downgrades by influential analyst Dick Bove. Adding to sectoral woes was a report that four of the top five US newspapers' circulations had declined. Commodities looked toppish, oil falling 1.9%, and copper (-1.3%) currently forming a key reversal. US 10yr notes made a two-month yield high of 3.58%, up 9bp from Sydney's close, despite a strong 5yr auction.
Reversal signals have increased in frequency over the past month, and EUR joined the club on Monday, making a fresh 2009 high of 1.5063 during Asia, but collapsing during NY to the current 1.4850 level. JPY continued its 3-week run of weakness, as officials now seem less willing to tolerate currency strength, and USD/JPY nudged higher to 92.39.
AUD showed its vulnerability to a reversal in risk appetite, trading sideways around 0.9260 until the NY session, when it fell 1.3% to 0.9140.
NZD was also belted, from 0.7565 to 0.7460, PM Key's opinion the RBNZ would maintain its dovish stance taking speculators out of long positions ahead of this Thursday's meeting. AUD/NZD was relatively calm between 1.2235 and 1.2295.
US Dallas Fed factory index rises from -6.4% to -3.3% in Oct. Like most of the other regional Fed factory surveys, the Dallas Fed index has been creeping higher, but unlike the others it is still at a level consistent with industrial contraction. Indeed its last positive reading was exactly two years ago, in October 2007.
US Chicago Fed national activity index for September slipped for the second month running, from -0.7 to -0.8. This is not a factory index nor does it pertain just to the Chicago area - rather, it is an index compiled from 80+ national economic indicators by the Chicago Fed office. Up until July it was improving sharply; since then it has lost some momentum.
German consumer confidence slipped from 4.0 to 4.0 in "November", though note the survey was actually conducted in early October.
AUD/USD and NZD/USD outlook today: The risk of the recent reversals in these currencies turning into something longer-lasting sees us adopting a neutral stance on the day. AUD should
be well supported at 0.9080-0.9110, and a break below would be significant. NZD is close to its key support level of 0.7455 so watch for a potential break downwards today.
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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