Wednesday March 17, 2010 - 19:39:16 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Thursday 18 March 2010
News and views
Risk appetite remained strong last night, encouraged by a weak PPI report on the heels of an easy FOMC stance. The negative producer inflation reading was seen by the market as depressive for interest rates, which is supportive of risk-taking. Yesterday's FOMC result boosted equities in Asia (HK +1.2%, Shanghai +1.9%, Nikkei +1.2%) and Europe (Eurostoxx +1.1%), and the residual sentiment helped the S&P500, currently up 0.9%. Commodities are up 1.0% overall, copper +1.7% and oil +1.4%. US treasuries changed little across the curve, the effect of higher equities negated by the weaker-then-expected PPI, and seemingly subdued inflation holding the curve's recently flatter shape.
The US dollar consolidated last night above the Sydney closing low of 79.50. EUR spiked through 1.3800 key resistance, to 1.3820, but did not follow through and retreated to 1.3730. GBP once again outperformed the majors, surging from 1.5200 to 1.5382 and holding most of the gain. Jobless claims fell.
USD/JPY was choppy around the BoJ outcome (loans to banks double to JPY20trn) but remained directionless between 90.00 and 90.70, currently near the lower bound.
AUD broke above 0.9200 resistance to reach 0.9238, and sustained the move, currently around 0.9240. Commentator Stutchbury (The Australian) wrote that terms of trade suggest the new "normal"interest rate may be much higher than previously.
NZD broke its key resistance level of 0.7100 yesterday, and confirmed its follow-through last night by reaching 0.7179 and holding above 0.7150. The two-week downtrend in AUD/NZD was maintained, a fresh low of 1.2871 made.
US PPI falls 0.6% in Feb. The PPI headline was pulled lower by energy prices which dipped during the survey period in early Feb but have since bounced higher again. Food prices were solid, up another 0.4%, but the core PPI was subdued at 0.1%, with the often volatile light truck component down 0.1%.
BoJ increases credit expansion efforts but with dissenters. The Bank of Japan finally made a response to signs of deepening deflationary problems, raising its 3mth bank loan facility to JPY20trn in promote credit expansion. These efforts to boost liquidity came despite its retained assessment that the economy was picking up and despite formal dissent from two board members.
Japanese tertiary activity index provided a welcome upside surprise in Jan, rising 2.9% vs expectations of a 1.3% gain. The through the year change in the index improved to just -0.8% from -2.7% in Dec although it is being assisted by favourable base effects.
Euroland labour costs rise 2.2% yr in Q4 09, the equal slowest pace of gain since 1998, and a marked deceleration from 4.5% yr in late 2008.
UK unemployment falls 32k in Feb, and Jan's 24k rise revised to just 5k. This outcome means claimant count unemployment has fallen in three of the last four months, a sign that the labour market might have turned after nearly two years of increasing joblessness. However the quarterly employment numbers showed a 54k decline in the three months to Jan, so that positive view is not yet fully confirmed by the data.
Bank of England March meeting minutes 9:0. Another unanimous vote for no change in rates and no quantitative easing extension, although some members considered that upside inflation risks had increased "slightly".
Canadian wholesale sales jump 3.0% in Jan, the fifth consecutive gain and the fastest rise in three years, driven by broad-based gains across all sectors, the strongest being autos.
AUD/USD and NZD/USD outlook next 24 hours: AUD is looking stretched intraday, but pullbacks should find support at 0.9200. Today's ACCI business survey will be watched. NZD sustained its 0.7100 break, which suggests that should be a good support level on the day, and further gains to 0.7200 are possible this week.
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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