Monday December 7, 2009 - 19:57:03 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Trade the News)
Morning Report Tuesday 7 December 2009
News and views
In a largely event-free evening, risky currencies and commodities continued their Friday night sell-offs during early London, and then stabilised until Fed Chairman Bernanke spoke in Washington. His summary of the economic situation downplayed inflation risks and noted headwinds to growth, overall dovish enough to arrest the declines in risk markets. The S&P500 is little changed (+0.3%) although banks are down 0.9%. Commodities broke lower on an intraday basis - oil (-1.0%), copper (-0.9%), silver (-1.6%) and gold (-0.4%). US interest rates gave back over half of Friday's gains, the 2yr note losing 5bp in yield, and the 10yr -4bp. S&P put Greece's sovereign credit rating (A-) on negative watch, and Portugal's on negative outlook.
The US dollar is slightly weaker, but did make a fresh one-month high of 76.20 and remains above the multi-month range it broke on Friday. EUR was hit hard during early London, from just under 1.4900 to 1.4760, but then spent the session grinding higher to 1.4820, and finally spiking to 1.4880 on Bernanke's speech. The yen also reversed earlier losses, firming to almost 89.00 against the dollar.
AUD followed EUR and initially fell from 0.9160 to 0.9050, later recovering to 0.9180 (as we write).
NZD fell from 0.7180 to 0.7080, and is back to 0.7180 this morning. AUD/NZD ground higher during the evening to just over 1.2810, but is now slipping below 1.2800.
No US data.
Fed Chairman Bernanke maintained a cautious tone in a speech at the Economic Club of Washington. He saw modest growth for the US economy in 2010, but noted that tight credit conditions and the weak jobs market present major headwinds. With plenty of economic slack and subdued inflation, interest rates are expected to remain low for an extended period. But even if inflation did become a concern, the Fed had the ability to tighten through short-term interest rates - perhaps the first clear hint from the Chairman that rate hikes could precede the withdrawal of quantitative easing.
German factory orders fell 2.1% in October, weaker than expected. Autos and parts orders were weak, and more so for overseas orders, suggesting that the impact of car scrappage schemes in Germany and elsewhere is fading.
Canada building permits rose 18% by value in October. A 42% rise in the volatile non-residential permits led the charge, but residential permits also recorded a solid 3.8% gain after a 12% rise in September.
AUD/USD and NZD/USD outlook today: Although the macro environment for AUD remains supportive, the technical picture of lower highs and lows is worrying. A break above 0.9325 reaffirms the medium term bullish case. NZD tested key 0.7080 support but was repelled, keeping it rangebound between 0.7080 and 0.7300.
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