Wednesday January 27, 2010 - 20:35:58 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Thursday 28 January 2010
News and views
Sentiment remained negative around the globe, the cumulative effect of recent China tightening, US bank curbs, sovereign credit risks, and stretched optimism around US equities. Weak US new home sales added to the gloom, as did a Fitch comment that Portugal's latest fiscal plan may not be enough to avert a downgrade, as well as Greece's 10yr sovereign credit spread exploding (by 50bp to 350bp over bunds). Asian, European, and US major equity indices were all down, the S&P500 currently 0.5% lower and making a fresh 2010 low. The latest bout of aversion to Greek credit risk may have been cause by news (denied) that China was approached for debt funding. Commodities are lower, oil -0.9%, copper -3.7%, and even gold at -0.8%. US 2yr notes gained 2bp in yield, while the 10yr shed 2bp, perhaps due to inflation fears receding. The 5yr auction went well, particularly the showing by foreign investors.
The US dollar remains near recent elevated levels, last seen in September 2009. This morning's FOMC meeting left the rhetoric largely unchanged, but with a subtly hawkish shift (notably the on-record dissent of one member). EUR made a fresh 2010 low of 1.4022, last seen in July. GBP held recent ground, bouncing to near 1.6250 before settling at 1.6175. The BoE's Sentence said the UK shouldn't experience a double-dip recession. USD/JPY consolidated just above yesterday's 2010 low of 89.14.
AUD was heavy during the European and US sessions, gaining little from its yield-supportive inflation report, and it is breaking below 0.8940 as we write.
NZD gyrated between 0.7040 and 0.7100, currently testing the low. The RBNZ meeting a few minutes ago, like the FOMC, resulted in a slightly hawkish shift, paving the way for a significant language change in March, but the currency remains dominated by negative global sentiment. AUD/NZD pulled back from the 2010 high of 1.2766 to around 1.2680.
US Fed on hold at 0-0.25%, following this week's FOMC meeting. The statement was little changed from that issued after the December 16 FOMC meeting, but there was one significant development: The "extended period" commitment was still there - "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period." However there was a dissenter: Voting against the policy action was Thomas M. Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted." This dissent is a small step towards first changing the "extended period" language, and then eventually lifting rates - something we don't expect this year. The Fed's assessment of the economy was upgraded a touch too, from "economic activity has continued to pick up" in December to "economic activity has continued to strengthen" in this statement. But the inflation comment was identical in meaning to last time: "With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time."
US new home sales down 7.6% in Dec. Back to back plunges in new home sales in late 2009 add to the weight of evidence pointing to a fading housing recovery. First home-buyer tax credit issues and poor weather may be part of the story, but there does seem to be some sense of "running out of steam" after the run up in new sales in the first half of 2009.
German inflation slipped from 0.9% yr to 0.8% yr in the preliminary January report.
UK retail sales fell back in January according to the CBI survey, which slipped from 13 to -8. That's no surprise given that VAT was lifted back from 15.0% to 17.5% on January 1 (which also explains the solid sales in late 2009 as shoppers sought to beat the rise). Disruption from heavy snowfalls in early January would also have impacted the data.
AUD/USD and NZD/USD outlook today: Corrective rallies have been very shallow for both currencies. AUD looks set to break lower on the day - watch the 0.8940 minor support level. Similarly watch NZD's 0.7020-0.7040 support area, a break below would signal a deeper fall.
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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