Tuesday October 27, 2009 - 19:24:51 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Wednesday 28 October 2009
News and views
The bearish mood prevailed for another day, risk assets slightly weaker and the US dollar slightly stronger. The S&P500 gyrated during the opening hour, liking the better US house price data, but then slipping after a poor consumer confidence report, currently down 0.2%. Commodities were little changed. US treasuries gained on the consumer data, as well as very strong demand for the record-sized two year auction (highest bid-cover since August 2007). The whole curve fell around 8bp, the 2yr notable for its bullish outside reversal day warning of further gains ahead.
The US dollar index gained for the third consecutive day, and is close to testing the ceiling of a five-month long descending wedge. An upward break would argue for a phase of dollar bullishness. EUR fell from the London open, from 1.4926 to 1.4770, headline M3 sub-consensus. GBP outperformed, gaining slightly to 1.6380 after a volatile evening. CAD also gained overall, from 1.0700 to 1.0650, ignoring the rhetoric from BoC's Carney (which, to be fair, was less venomous than the market expected). The dollar slipped against the yen, from 92.20 to 91.80.
AUD fell after the Sydney close, from 0.9218 to 0.9120.
NZD peaked shortly after the Sydney close at 0.7517, and then slid to 0.7420. AUD/NZD ground higher to 1.2320.
US consumer confidence falls from 53.4 to 47.7 in Oct. The fall was not a surprise, given that most other consumer confidence measures for October have been softer. However the extent of the fall, and in particular, the sharp deterioration in the job market assessment (to the weakest yet this cycle), suggest that the household sector is still very cautious and more prone to save rather than spend.
US Richmond Fed factory index slips from 14 to 7 in Oct. This was the first regional business survey to turn positive back in May, so its slippage this month could be significant. The shipments, orders and jobs detail were all softer. The separate Richmond services and retail indices were also weaker, down from -12 to -22 and -6 to -23 respectively.
US house prices up for fourth month running. The S&P-Case Shiller house price index rose 1.1% in Aug, bringing prices up about 5% from their lowpoint in April, although recall they fell 33% from their 2006 peak!
Euroland money supply growth plunged from 2.6% yr to 1.8% yr, and growth in credit to the private sector turned negative for the first time ever. Despite evidence of a bounce in industrial activity from the global trade slump driven IP crash a year ago, it is clear that the banking system remains impaired and credit demand is very weak - key factors that will severely hamper Euroland economic recovery.
UK retail sales improving? The CBI's retail survey rose from 3 to 8 in October, though recall that the rise from -16 to 3 in September did not prevent the official retail sales report for last month from being weak (it was just flat).
AUD/USD and NZD/USD outlook today: AUD withstood a couple of tests of its 0.9120 support level, and today's CPI report should be supportive short-term. NZD looks more fragile, having broken below 0.7450 support, although today's business confidence report should hold it above 0.7420 until tonight.
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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