Tuesday April 6, 2010 - 22:06:07 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Wednesday 7 April 2010
News and views
US equities made a fresh 2010 high, boosted by slightly dovish FOMC minutes (albeit with debate from both sides), and led by banks which also benefited from analyst upgrades. The S&P500 opened weaker on concerns it was getting extended, but rallied on the news to +0.3% currently, banks' +2.8%. Commodities were mixed and little changed, oil firming 0.3% but copper losing 0.2%, gold +0.4% but silver -0.6%. Whole milk powder rose a whopping 21% over a month at Fonterra's regular auction, much higher than other indicators would have suggested. US treasuries were in demand at the higher yields prevailing. Ongoing Greek bailout negotiations, the FOMC minutes, and the solid 3yr auction (3.1 times covered, and higher 52% foreign bids) also helped, and most maturities shed around 3bp on the day.
The US dollar firmed modestly. EUR underperformed, falling below 1.3355 before recovering to just above 1.3400, amid squabbles around the terms of Greek support. With little market impact, Moody's cut Iceland's Baa3 credit rating outlook to negative from stable citing bailout uncertainty arising from ongoing disputes with depositors. USD/JPY slipped slightly from 94.00 to 93.66.
AUD was the outperformer among the majors in the wake of the 25bp RBA cash rate hike, initially consolidating back to 0.9212 during the European session, but making a fresh post-Jan high of 0.9289 in NY.
NZD was sold further during the AUD's consolidative period to 0.6966, but rebounded similarly, accelerating in NY after the Fonterra results was announced to 0.7974. AUD/NZD to a fresh decade-high of 1.3235, but is back to 1.3140.
US March 16 FOMC minutes. Fed officials noted that the economy appeared to be strengthening, but recognised the risks from persistent high unemployment and tight credit conditions. Some members felt that the risks associated with tightening policy too soon were greater that those associated with a later start.
Fedspeak: Recently appointed president of the Minneapolis Fed, Narayana Kocherlakota said he would be surprised if unemployment were below 9% at the end of this year, described the inflation outlook as promising, said housing would struggle for several years, and that banking faces ongoing problems.
Euroland Sentix investor confidence jumps from -7.5 to 2.5 in Apr, its highest since mid 2008. This result indicates that investors are not too concerned that the current bout of worry about some euro member sovereign debt positions will derail the emerging economic recovery.
UK mortgage equity withdrawal - a thing of the past. BoE data for Q4 last year showed the seventh consecutive quarter of "negative withdrawal" (i.e. equity injection), of GBP4bn. In related news, however, the construction PMI rose from 48.5 to 53.1 in March, its first expansion reading (i.e. >50) in just over two years.
AUD/USD and NZD/USD outlook next 24 hours: AUD has broken above 0.9250 and now targets 0.9330, with 0.9200 now likely to contain any pullbacks. NZD's support level today is 0.6970, and we favour a push higher to 0.7100
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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