Monday May 31, 2010 - 21:48:24 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Blog - Morning Report (Westpac)
Morning Report Tuesday 1 June 2010
News and views
It was a quiet European/US session, with the US and UK on holiday, S&P500 futures ranging sideways, and European stocks little changed. The notable data release overnight was Canada's +0.6% GDP growth for March, beating the +0.5% consensus, and taking the annualized Q1 rate to +6.1%. That adds weight to the view the central bank will hike by 25bp tonight, which in turn will be taken by markets as one guide to RBNZ action next week. Russia's central bank cut its policy rate by 25bp top 7.75%, the 14th consecutive cut, probably ending its easing cycle. The ECB released its Financial Stability Review, including an acknowledgement that the debt crisis may delay its withdrawal from accommodative monetary policy.
Currencies were largely stable, apart from some month-end fixing movement. The US dollar index ranged narrowly sideways. EUR stabilised between 1.2270 and 1.2330. USD/JPY dropped from 91.50 to 91.00 on month end fixing. USD/CAD dipped from 1.0500 to 1.0415 after its strong GDP print, stabilising later at 1.0450.
AUD drifted off from 0.8470 to 0.8450, apart from a short-lived dip to 0.8380 on fixing related flow.
NZD behaved similarly, drifting from 0.6820 to 0.6790, the fix taking it to 0.6710 briefly. AUD/NZD remained in a 1.2400-1.2450 range.
No US or UK data. Markets closed for Memorial Day and Spring Bank Holiday respectively.
Japanese industrial production below expectations. The preliminary estimate for April came in at 1.3% against market expectations of 2.5%. Despite this, industrial production is still up almost 26% over the year. Housing starts were also weaker than expected at 0.6%yr in April; markets had expected 6.6%yr. In contrast, labour earnings were stronger than expected at 1.5%yr.
Eurozone inflation edged up to 1.6% yr in May, according to the flash estimate. Higher energy prices and a weaker euro have pushed up import prices, but overall inflation remains within the ECB's target range.
Eurozone confidence surveys were a mixed bag in May. The business climate indicator rose from 0.28 to 0.34, but the sentiment indicator fell from 100.6 to 98.4. But for a change, sentiment has been mixed while the hard activity data has been genuinely improving.
Eurozone M3 money supply fell 0.1% in the year to April. Notably, loans to the private sector rose 0.1% yr, the first annual increase in eight months.
The ECB's Financial Stability Report said that heavy government financing requirements over the next few years could crowd out private sector issuance, pushing up interest rates and setting back the economic recovery. It also noted that ongoing tensions in funding markets could delay the removal of the ECB's credit support measures.
Canadian GDP grew by 6.1% annualised in Q1, slightly ahead of market forecasts and an improvement on the 4.9% pace in Q4. Moreover, growth is increasingly being driven by private demand, with government spending contributing only 0.6ppts to growth compared to 2.3ppt and 2.5ppts in the previous two quarters. Consumption, fixed investment and inventory made strong contributions, and both exports and imports rose sharply, though the net contribution was a small negative. The data backs market expectations that the Bank of Canada will begin hiking rates at tonight's review.
AUD/USD and NZD/USD outlook next 24 hours: Today's RBA and BoC outcomes will provide direction for AUD and NZD today, with at least the latter expected to be supportive. AUD has minor support at 0.8390 and could break 0.8550 resistance. NZD has support at 0.6740.
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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