Tuesday September 21, 2010 - 20:53:38 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Wednesday 22 September 2010
News and views
US central bank ready to do more. The US dollar was sold and US treasury bonds bought after the FOMC policy statement said it was ready to provide additional accommodation (such as quantitative easing) if needed. While the timing of such accommodation wasn't mentioned, there were clues one possible trigger would be inflation remaining uncomfortably low. The markets reacted in a similar manner to last week when rumours of QE swept the market. The S&P500 bounced 1% after earlier meandering slightly in the red, but the euphoria was short lived and the index is currently down 0.3%. Commodities are weaker, the CRB index down 0.5%, oil -1.8%, and copper -0.3%. Anti-fiat money gold rose 0.6% to a fresh record $1289. US 10yr treasury yields fell 12bp to 2.58%, flattening the 2-10yr curve by 8bp. Government bond auctions in Ireland and Spain were successful, alleviating some pressure on those markets.
The US dollar index fell around 1% on the prospect of QE, stopping short of important support at 80.00. EUR did the reverse after spending the previous 10 hours ranging sideways under 1.3150. The FOMC surge took it to 1.3286 before settling around 1.3230. USD/JPY fell abruptly from 85.40 to 85.00.
AUD hovered between 0.9450 and 0.9500 before the FOMC-induced USD selling saw it peak at 0.9564, a fresh high.
NZD ranged between 0.7260 and 0.7310 before peaking at 0.7353. AUD/NZD has remained stable throughout, ranging between 1.2960 and 1.3020.
US housing starts came in much stronger than expected in August, rising 10.5% in the month to an annualised rate of 598k, and suggesting that the payback from the homebuyers tax credit may now be over. That said, the rise was largely the result of a surge in the volatile multi-family component (up 32.2% in August). New construction of single-family homes lifted by a much smaller 4.3% to an annualised rate of 438k, although this is the first increase in four months. Still, in annual terms single family starts remain 9.1% lower than a year ago.
US building permits also lifted during August, up 1.8% in the month. However, at current levels permits are still running 6.7% below a year ago. Moreover, permits for new single family homes fell 1.2 percent and are running below the current pace of construction, which suggests little to no improvement over the next few months.
US FOMC - as expected the Fed left interest rates on hold but left the door open to further stimulus in the future. While the economic outlook was essentially unchanged this month (although the Fed did recognise that growth would be modest in the near term), there was a notable shift in emphasis toward inflation. "Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability." That suggests that it won't just be growth that determines whether further stimulus is forthcoming, but also inflation. "The Committee ......... is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."
Canadian headline CPI rose 0.1% in August (1.7% y/y), while core inflation was flat (1.6% y/y). Services inflation remains a key concern, with the annual rate running at 2.2%.
AUD/USD and NZD/USD outlook next 24 hours: AUD continues its march higher, and any intraday corrections should be limited to 0.9500. NZD has minor support at 0.7300, today's current account release posing some risk.
.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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