Sunday December 13, 2009 - 22:45:54 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report 14 December 2009
News and views
The highlight of Friday's offshore sessions was further evidence (after the previous week's US payrolls data) of a swing in the correlation between US economic data outcomes and the US dollar, from negative to positive. The surprising pop in the Michigan confidence gauge, and consensus-beating retail sales, fuelled a rally in equities and the dollar. The S&P500 opened strongly, but lost ground later to close +0.4%, Japan's Nikkei earlier closing up 2.5%. Commodities were hurt by the dollar's gains, oil -1.0% and gold -1.4%, although copper managed to rise 1.0% helped by China's 19% yoy industrial production gain. US 10yr notes were sold by 5bp, and the 2-10yr curve steepened to around the May high of 276bp. In credit news, Ukraine asked the IMF for a $2b emergency loan, saying it had difficulty meeting external obligations.
The US dollar ranged around 76 before the US data, raising expectations of a shift in the Fed's stance and therefore supporting higher yields, pushed it 1% higher. EUR broke lower for the second time last week, from above 1.4750 to just below 1.4600. Yen was not immune, moving from around 88.60 to 89.80 before settling at 89.00.
AUD had a brief crack at 0.9200 but fell short, and the US data releases helped it completely reverse Thursday's gains, falling from 0.9195 to 0.9090, settling at 0.9125.
NZD had a brief crack at 0.7300 but failed and it fell to just above 0.7220, opening this morning at 0.7250. AUD/NZD closed at the weaker end of a 1.2580 to 1.2620 range.
US retail sales surged 1.3% in November. The strongest gains were seen in the auto sector, with gasoline sales up 6% on higher prices and vehicles managing a solid 1.6% despite the boost from the cash for clunkers scheme having long faded. The 0.6% rise in ex-auto sales was also better than expected, with notable strength in electronics and department store sales.
US University of Michigan consumer sentiment bounced to 73.4 in December, almost reclaiming the cycle high of 73.5 reached in September. Current conditions jumped from 68.8 to 79.1, while expectations saw a smaller rise to 69.7. Not by coincidence, inflation expectations were the lowest since September, with prices expected to rise 2.1% in the next year compared to 2.7% last month. Inflation expectations 5-10 years ahead fell from 3.0% to 2.6%. It's not clear why views on inflation have shifted so much in the last month, but these results suggest that the cost of living is becoming a major consideration for households again.
US business inventories rose 0.2% in October. This was the first increase in 14 months, and marks the first point of an outright rebuilding in inventories (was opposed to a slower rundown rate).
US trade prices rose in November, due to a lower US dollar and higher commodity prices. Import prices rose 1.7%, with petroleum the main contributor. Export prices rose 0.8%, with a 3.7% rise in agricultural prices.
UK producer prices rose 0.2% in November. Favourable base effects, as today's fuel prices were compared against the steep decline late last year, pushed the annual inflation rate up to 2.9%. Core producer prices were more subdued with a 0.1% drop.
Canada new home prices rose 0.3% in October. Prices have risen in the last four months, marking a clear end to the decline from late 2008 that was sparked by the financial crisis.
AUD/USD and NZD/USD outlook today: The week starts with a soft tone. AUD has resistance at 0.9200 and looks like it will test 0.9100 today, 0.8950 this week. NZD should remain under 0.7300.
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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