Wednesday February 24, 2010 - 19:24:30 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Thursday 25 February 2010
News and views
US equity markets were relieved Fed Chairman Bernanke's testimony maintained the "low rates for an extended period" line, the S&P500 currently up 0.8% despite weak house sales data. Commodities were modestly higher, the CRB index up 0.5% and oil +0.8%, copper 0.6%, but gold -0.8% citing dampened inflation expectations. US 2yr treasuries were weaker by 3bp and 10yrs are unchanged, flattening the curve to late-December levels. The 5yr auction was lacklustre at 1bp above forecasts and lower foreign participation. Updates from the Mediterranean included Standard & Poor's saying it may downgrade Greece one or two notches within a month (note they last cut it from A- to BBB+ in December), and Greece acknowledging for the first time it had used off-market currency swaps in 2001, contrary to local law.
The US dollar was slightly softer mirroring equities, but remains near recent highs. So too was the EUR (in reverse), briefly spiking 80 pips around the time of Bernanke's testimony, but settling around 1.3550. GBP remained depressed, knocking on 1.5400 support. USD/JPY was quiet around 90.20, with a brief foray to 89.80.
AUD found a recent bottom at 0.8858 in Europe and then bounced almost a cent in the US, currently resting at 0.8935. Several journalists opined a 25bp rate hike was likely next week.
NZD bottomed at 0.6872 and then bounced to 0.6946. AUD/NZD broke upwards to 1.2910, close to the post-2000 high of 1.2969.
US Fed chair Bernanke presented his semi-annual monetary policy report to Congress. He noted that "Although the federal funds rate is likely to remain exceptionally low for an extended period, as the expansion matures, the Federal Reserve will at some point need to begin to tighten monetary conditions to prevent the development of inflationary pressures." At the same time, the Fed continues to evaluate whether more stimulus is needed.
US new home sales fell 11.2% in Jan, their third consecutive monthly decline for a total fall of 23% since Oct. The northeast, south and west all saw declines in Jan, some of which may be due to snowstorms, while the midwest was broadly unchanged. Sales are now at a new record low - all of last year's recovery has been unwound, despite the extended tax credit for home-buyers. New house prices continued to fall, with the median down 2.4% yr.
Japan merchandise trade balance: JPY728bn actual (adjusted basis) vs f/c JPY545bn. The better than expected trade surplus reflected both exports surprising to the upside (40.9%yr vs f/c 39.5%yr) and imports surprising on the low side (8.6%yr vs f/c 12.1%yr). The pick-up in the global economy is supporting export performance - although the annual figures continue to be distorted by the extreme weakness of early 2009. In other news, corporate service prices were largely as expected (-1.0%yr vs f/c -1.1%yr).
Euroland industrial orders rise 0.8% in Dec. Some rare positive news from the factory sector in late Q4 - back to back rises in orders in Nov-Dec. The Dec gain was due to a sharp rise in capital goods orders. However by country, France stood out with a 17.1% rise, which may prove to be a one-off; in contrast, German orders fell 1.8%.
German GDP growth unrevised at 0.0% in Q4. The breakdown showed falling private consumption, investment, construction and government spending, such that domestic demand fell an alarming 2.1%. That was entirely offset by a 1.8% fall in imports and 3.0% gain in exports.
AUD/USD and NZD/USD outlook next 24 hours: We wouldn't expect AUD's bounce of the past few hours to continue beyond 0.8980 today. Similarly, any NZD rally today should be capped at 0.7000.
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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