Wednesday May 12, 2010 - 20:50:02 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Blog - Morning Report (Westpac)
Morning Report Thursday 13 May 2010
News and views
US equities gained and treasury yields gained, but currency and commodity markets wee mixed. The modest lift in optimism seems to have been inspired by Spain's announcement of spending cuts worth EUR15bn, with Portugal expected to follow with their own new targets in the next few days. Also comforting was Portugal's ability to issue EUR1bn bonds. The CRB commodities index rose 0.7%, although oil fell 1.2% (inventories reported higher), and copper struggled (-1.0%). Gold made a fresh record high of $1249. US 3mth Libor continued its rise, up 0.7bp to 0.43%. US 10yr treasuries followed equities' lead and are 4bp higher in yield. The 10yr auction was solid, the yield on market and bids of 3 times the offered amount.
The US dollar index dipped in late Asian trading, but recovered fully in Europe/NY. EUR did the opposite, rising to 1.2740 in Asia, but falling back to 1.2620 in NY. GBP underperformed the majors, after a dovish BoE inflation report, falling from 1.5050 to 1.4830. USD/JPY ground higher from 92.80 to 93.30.
AUD is little changed from its 0.8910 Sydney close, having tested 0.8980 during Europe.
NZD tested 0.7200 but fell back to 0.7110. AUD/NZD is slightly higher at 1.2535.
US trade deficit widens from $39.4bn to $40.4bn in March. A 3.2% surge in exports (despite another fall in the lumpy civilian aircraft component) was more than offset by a broad-based 3.1% imports gain, which included a sharp jump in civilian aircraft and oil volumes (but not prices).
Euroland GDP grew 0.2% in Q1, reflecting a similar sized gain in Germany, but softer 0.1% growth in France and a solid 0.5% bounce in Italy. Back revisions to national data were not incorporated in the flash Euroland estimate, so Q4 remains at 0.0% for now, but that may be revised higher when more GDP detail is published on 4/6. Other data included a 1.3% rise in Euroland industrial production in March, the tenth straight monthly gain after the collapse in output in late 2008/early 2009.
Estonia admission to euro approved. This will take place in January 2011, making Estonia the 17th country to adopt the euro (apparently it's too late for them to back out now!).
Bank of England inflation report. The BoE still sees inflation above target for a while, but below 2% by 2012 which is most relevant when setting monetary policy. The Governor said he had seen the broad fiscal plans of the new coalition which included more aggressive budget cuts than committed to by the previous government. These were not included in the Bank's projections but he welcomed them as they reduced the downside risk that would flow from adverse market reaction to lack of progress on the fiscal front.
UK labour market still fragile. Although benefit claimant count unemployment fell 27k in April, the more respected but less timely household survey found a 53k increase in unemployment in Q1, and a 76k fall in jobs in the quarter.
Canadian trade surplus C$0.3bn in March. This narrower surplus reflected a modest export fall and a 2% rise in imports. Other data included a 0.3% rise in March new house prices, the ninth in a row.
AUD/USD and NZD/USD outlook next 24 hours: Australia's employment report today poses risks for the AUD, which looks soggy and should remain below 0.9050. The NZD also looks weak in the short term, capped by 0.7200, and more likely to move towards 0.7050.
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