Wednesday September 8, 2010 - 21:40:13 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Thursday 9 September 2010
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Risk appetite returned as European concerns receded. The S&P500 is currently up 0.8%, having turned upwards at the European open. There was little news to drive the reversal of the previous day's decline, although some pointed to a good Portugese government bond auction (around EUR1bn of 3yr and 10yr with bids for twice the offering). Commodities followed equities higher, oil up 0.8% and copper up 0.6%. Silver (+0.8%) made a fresh two-year high. US 10yr treasury yields are 6bp higher at 2.65% after falling 6bp from 2.68% following the Fed's Beige Book. That report referred to overall economic growth at a modest pace, but noted widespread signs of a deceleration compared with previous periods. The 10yr auction earlier went better than expected, 1bp better than market and a healthy 3.2 coverage with high offshore interest.
Risk currencies benefited. The US dollar index was volatile and fell from early Europe's 82.90 to early New York's 82.40. EUR rose from its session low of 1.2660 to 1.2763. Safe haven yen underperformed (closely followed by the Swiss franc), USD/JPY firming to 84.04, persistent intervention chatter also helping. CAD outperformed, USD/CAD falling from 1.0475 to 1.0345 after the Bank of Canada hiked by 25bp to 1.00%, despite a dovish statement implying they will now pause. The surprise was also felt in the interest rate markets, the CA 2yr swap rate surging 16bp (to 1.55%) after the news.
AUD continued its domestic bounce to a high of 0.9194, a fresh one-month high.
NZD also gained, to 0.7240. AUD/NZD firmed to 1.2753, but then sagged in NY to 1.2695.
US MBA Mortgage applications declined for the first week in six by 1.5% as mortgage rates backed up from the record low of 4.43% the previous week, reducing demand for refinancing.
German industrial production increased 0.1% in July, well below market consensus of 1.0. On the month, manufacturing production was unchanged while energy contracted 0.1% and construction rose 0.9% - offsetting the 0.8% decline in June. Given the annual rate hit a record high of 13.9% in May, the slowdown in the trend is by no means surprising.
UK Halifax House Prices unexpectedly posted a gain of 0.2% in August from an upwardly revised 0.7% in July. There was a third consecutive decline in the 3m/yr rate, now at 4.6%, from a peak of 6.9% in May.
UK manufacturing came in broadly in line with expectations with both industrial and manufacturing production increasing 0.3% in July. Despite sterling weakness boosting the annual rate for manufacturing to 4.9%, the highest since 1994, the quarterly rate of growth suggests that Q3 manufacturing will continue expand at a slower pace to Q2.
The NIESR estimate for UK GDP in the three months to August slowed to 0.7% from 1.3% in the three months to July. The institute noted that they expected further weakness in GDP growth over the coming months.
The Bank of Canada raised interest rates by 25bps to 1.00%. The accompanying statement, however, was very much on the dovish side and non-committal on any further rate hikes. The BoC were cautious in their outlook for both the domestic and global economy stating that the Canadian recovery is now expected to be more gradual than previously projected given the current backdrop in the US while the global recovery "remains uneven". In terms of the future path of rates, the BoC are keeping their options open given the "unusual uncertainty surrounding the outlook".
Canada IVEY PMI rose to its highest level since June 2008 registering an increase to 65.9 during August. Within the breakdown, inventories, supplier delivery and prices were all higher, although employment was down modestly to 51.6 from 52.0.
AUD/USD and NZD/USD outlook next 24 hours: AUD could challenge the 6 August 0.9220 high, any pullbacks finding support in the 0.9100-0.9140 area, although today's employment report poses significant event risk. NZD is likely to challenge resistance at 0.7250, with support at 0.7150.
.Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 13 August 2010. 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 Westpacâ€™s
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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 registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. Â© 2010 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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