Thursday August 12, 2010 - 20:26:20 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Friday 13 August 2010
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US equities fell further at the open, catching up with Cisco's weak revenue guidance and noting a weak reading from the US jobless claims report. The S&P500 is currently down 0.6%, the VIX barometer of risk aversion higher. Commodities are unchanged overall, although oil sank 3.2% to $75.50 on lingering concerns regarding the US economy. Shipping costs continued to surge, the Baltic Dry index now 40% above its 15 July cycle low. US 3mth Libor ground 0.8bp lower to 0.376%, but US yields further along the curve rose. 10yr treasuries added 6bp to 2.74%, most likely on profit-taking, consolidating a two week yield decline. Rumours of mortgage forgiveness and cutting the yield on overnight Fed cash made for a choppy session but had no lasting effect. The 30yr auction went well, increased foreign buying again noted.
The US dollar nudged higher in Europe and consolidated recent gains in NY. EUR made a fresh month low at 1.2781 and settled around 1.2830. Eurozone industrial production disappointed. USD/CHF fell from around 1.0600 to 1.0465, the franc outperforming all on the day, perhaps as an alternative safe-haven to the yen. USD/JPY continued its reversal higher to 86.00.
AUD ranged at the recent low after Sydney closed between 0.8914 and 0.9008, spending the NY session around 0.8950.
NZD, though, had another run slightly lower to a 0.7066 month low, underperforming on the day. AUD/NZD pushed higher as a result, but within the week's range, to 1.2645.
US initial jobless claims rise 2k to 484k in the week ended 7/8. That is the highest new claims pace since February, and with no special factors at play, it would seem to indicate that the labour market has softened in recent weeks, consistent with the slowing that is taking place in the broader economy. In the prior week, continuing claims fell by 118k to 4.45mn, but that may reflect claim benefits running out. The number receiving special extended/emergency benefits surged 1.34mn to 5.28mn in the week of 24/7, when new eligibility rules came into effect.
US import prices rise 0.2% in July, but fall 0.2% excluding petroleum. Higher oil prices were clearly a factor at play, but with the US dollar depreciating through the month, the fall in ex oil prices was surprising. Export prices fell 0.2% last month.
Japanese capacity utilisation declined by 2.1% in June after a 0.8% increase in May. The final industrial production outcome was also released today: the 1.5% decline in production contained in the preliminary release was revised to a 1.1% decline; this leaves production 17.3% higher than a year ago.
Euroland industrial production down 0.1% in June. This follows last week's news that German IP contracted in June, and gives us some comfort holding onto our below consensus 0.6% forecast for Euroland Q2 GDP growth, due Friday 13/8.
AUD/USD and NZD/USD outlook next 24 hours: AUD major support at 0.8900 should again hold, at least until tonight's swag of US data releases. NZD support at 0.7100 gave way earlier than we expected, 0.7030 the next downside target. Today's NZ retail sales report could garner a market response.
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