Sunday December 20, 2009 - 19:32:52 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Monday 21 December 2009
News and views
US equities closed with small gains and commodities were generally higher too. However, weekend press may test the calm. The UK Sunday Times claimed European banks may have to raise EUR450bn over the next two years to meet stringent new capital rules. British banks may need about GBP50bn of additional new capital. Hardly compelling arguments to start buying EUR and GBP again.
Last week saw the biggest fall in the EUR since April as the USD staged a massive comeback and all currencies fell heavily on the week. The 1.4300 level in EUR gave way on Friday in NY and we hit a low of 1.4262 before markets started to show signs of stability. Quadruple witching passed with little volatility in stocks. Indeed, markets were so quiet that a headline for Iraq's interior minister that Iran had crossed the border had almost no impact on EUR.
AUD closed with a modest bid tone after a horrible week. Softer headline data and more dovish than expected RBA comments saw the A$ slammed against all currencies. However, NY saw better support for the AUD and it closed pretty much on 0.89.
Having traded sub 0.7070, the NZD closed around 0.7110.
No US data to report.
Bank of Japan meeting. The Bank kept the cash rate at 0.1% and its 3mth term lending facility at around JPY10 trillion. However, the Board has made some very importance changes to its policy setting framework by issuing a clarification of its "understanding" of price stability, alongside some stronger language around the undesirability of deflation. Specifically, the Board "does not tolerate a year-on-year rate of change in the CPI equal to or below zero percent". Basically this is a harder inflation target than previously existed. Furthermore, they have gone as far as to state that the "accumulation of financial imbalances" will now become a formal element of their risk assessments.
Euroland balance of payments data showed a EUR6.3bn trade surplus in Oct, but a EUR4.6bn current account deficit, continuing the recent pattern whereby net exports have helped the GDP bottom line but the broader external balance has been in deficit due to income and other flows.
German IFO business climate index rises from 93.9 to 94.7 in Dec, its ninth consecutive gain. In contrast, Belgian consumer confidence fell from -10 to -15, perhaps warning that the recent upswing in broader European confidence surveys might prove unsustainable.
UK consumer confidence fell from -17 to -19 in Dec, according to GfK, the second consecutive monthly decline after the decent run-up earlier this year. This might in part be related to concern about the government budget deficit: latest PSNCR figures (Nov) show the cumulative deficit for 2009/10 so far at GBP96.9bn, up from GBP29.7bn in Nov 2008. Other data showed bank mortgage approvals rising from 60k to 63k in Nov, a new high since the recovery in lending began. Also, the fall in Q3 business investment was revised from -3.0% to -0.6% (that's still a steep fall of around 20% compared at a year earlier).
Canadian wholesale sales rose 0.3% in Oct, with stronger auto sales offsetting weakness in food.
AUD/USD and NZD/USD outlook today: The risks remain that we see further USD strength, but both AUD and NZD started to show signs of stabilising on Friday. The 0.8850 level was tested in AUD a number of times Friday but it closed above 0.8900. It is hard to see strong arguments for gains, but decent demand was noted through the session suggesting we should see more consolidation today. NZD held key support at 0.7050, a break of which would be required for another leg lower.
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