Monday May 3, 2010 - 20:47:56 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Tuesday 4 May 2010
News and views
Sentiment improved globally. US equities rallied (S&P500 is up 1.4%) on improved personal spending, ISM, and construction data; Warren Buffet's defense of Goldman Sachs; confirmation of a $3.2bn merger between UAL and Continental Airlines; and rating agency Fitch saying last weekend's rescue deal materially reduces near-term credit risk for Greece. Only one sub-index, that for raw materials producers, declined (-0.4%), China's 50bp increase in reserve requirements to blame. That exception was evident in the commodities markets, with copper posting a 1.6% fall against a 0.2% gain in the CRB composite index, and modest gains in oil, gold, and silver. US treasuries were sold (4-6bp higher in yield) on some unwinding of the previous sessions safe haven flows.
The US dollar index rose at the US open, from 82.20 to 82.56, but subsequently returned most of the gain. EUR meandered around 1.3230 during the European session, falling to 1.3155 and recovering above 1.3200 during the US session, illustrating the market is not fully convinced by the Greek package. The yen was the day's underperformer among majors, moving from 94.00 to 94.80 vs the dollar. The outperformer was the CAD which gained 0.7% to 1.0100. Westpac had earlier issued a trade recommendation to buy CAD/CHF.
AUD lacked direction, ranging between 0.9250 and 0.9275 apart from a brief EUR-led foray down to 0.9228. Offshore reaction to the mining tax was generally negative.
NZD ground higher to revisit 0.7325 but was again repelled. AUD/NZD moved lower and made a second attempt on 1.2650 without success.
US manufacturing ISM rose to 60.4 in April, the highest since June 2004. New orders, production and prices paid were all stronger, and the employment index rose to a new cycle high of 58.5, which will put some upside risk on our forecast for private sector payrolls to be flat in April.
US personal income rose 0.3% in March, while spending rose by 0.6%, largely in line with the assumptions in last week's Q1 GDP release. Spending has been growing at an annualised rate of around 6% for the last six months, and the savings rate has dropped from 4.0% as recently as December to 2.7% today.
US construction spending rose 0.2% in March, although February was revised down to a 2.1% decline. Public sector spending finally turned higher, but private spending continued its decline, to the lowest level since January 1999.
Eurozone manufacturing PMI was revised up slightly to 57.6 on the final estimate for April.
AUD/USD and NZD/USD outlook next 24 hours: AUD will be subject to major event risk from the RBA today, but even with a 25bp hike, a move above 0.9330 is hard to see. A disappointment would likely push it down towards support at 0.9150. NZD remains supported at 0.7250, a break above 0.7325 pointing to the next target at 0.7440.
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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