Tuesday July 20, 2010 - 20:38:59 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Wednesday 21 July 2010
News and views
US equities were initially stung by weak US housing starts and a disappointing Goldman Sachs earnings report, the S&P500 gapping lower at the physical open but rebounding thereafter to be up 1.1% currently. The rebound was attributed to rumours the Fed may embark on a new quantitative easing program by reducing the interest payment on excess reserves from 25bp to zero, effectively channeling those funds into the market. CNBC later quashed the rumour. Commodities are little changed overall, although fast movers oil (+1.2%) and copper (2.6%) outperformed after equities turned. US 10yr treasuries are unchanged on the day at 2.95%, although they did reach a yield low of 2.89% in line with the early equities weakness.
Commodity currencies outperformed on the day. The US dollar index is little changed having gained during equities' weakness and softened on the later bounce. EUR peaked around the Sydney close at 1.3029 and plunged to 1.2839 before risk appetite stabilized it around 1.2900. USD/JPY rose from the 0.8700 area to 87.50. CAD is a cent stronger on the day at 1.0480, and formed a bullish outside day despite the earlier 40 pip selloff on the Bank of Canada's growth downgrade accompanying its widely expected 25bp hike to 0.75%.
Outperformer AUD left Sydney around 0.8800 and declined to 0.8713 until risk markets turned, currently at the day's high of 0.8839.
NZD fell to 0.7080 but followed sentiment higher to 0.7164. AUD/NZD nudged higher from 1.2300 to 1.2350.
US housing starts fall 5.0% in June, beyond market expectations for a 2% fall but not as far as Westpac's expectations of -8%. Markets were expecting a fall in housing starts, following the end of the tax credit earlier this year. The fall hasn't been in line with home sales, and we anticipate further weakness into the summer months.
UK public sector net borrowing GBP14.5bn for June. After improving relative to analyst' forecasts over the past two months, the June figures exceeded market expectations of GBP13.0bn. The May figures were also pulled higher from GBP16.0bn to GBP17.1bn but after adjusting for monthly gyrations the trend of greater monthly borrowing requirements looks to have steadied.
UK mortgage approvals fell to 48k from 51k in June. Mortgage approvals eased relative to market expectations and there has been no growth in approvals for all of 2010. That said, monthly approvals remain elevated relative to their trough of 35k in January 2009.
Bank of Canada raises overnight lending rate by 25bps to 0.75%, as expected. The decision was not contentious for the markets yet the related statement may have been a surprise to some. The BoC statement was less hawkish in tone than in April - it noted that the domestic economic recovery was 'more gradual' than was expected at the April review and pointed to rebuilding of balance sheets as reasons for a slower global growth. The BoC's inflation forecasts were not materially changed. The bank reiterated that 'considerable monetary stimulus' remains and restated that taking away of this stimulus will depend on 'domestic and global ... developments'.
AUD/USD and NZD/USD outlook next 24 hours: The strong US equities close should be initially supportive. AUD resistance today lies overhead in the 0.8850-60 area. NZD should similarly be capped by the 0.7160-00 area.
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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