Sunday September 26, 2010 - 21:18:43 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Monday 27 September 2010
News and views
Risk appetite was much stronger on Friday night after positive surprises from data in Europe and the US. Germany's IFO gave the EUR a boost, while US durable goods order (ex-transport) pushed global equities higher. A prominent hedge fund manager (Apaloosa) helped sentiment by opining the US central bank's "put" supported equity markets. The Eurostoxx 50 closed up 2.0%, the S&P500 +2.1%, and the VIX measure of risk aversion fell 2ppts. Commodities (CRB) rose 1.3%, breaking above six-month resistance. Gold made a fresh record high at $1300. US 10yr treasury yields bounced with the data, closing 5bp higher at 2.61%. Fed Chairman Bernanke didn't discuss monetary policy in his late-Friday speech, while Fed hawks Plosser and Lacker downplayed deflation risks.
The US dollar index fell 1.2% from the European opening to a seven-month low. The slide started after the German data, which took EUR from 1.3310 to 1.3400, the US data later pushing it to 1.3495, a five-month high. An extreme 96%% of small speculators (Daily Sentiment Index) are now bullish EUR/USD. USD/JPY spiked in Asia from 84.50 to 85.40 on intervention speculation and rumours the BoJ governor may resign, and later fell to 84.10 on dollar weakness.
AUD continued its Asian bounce, making a fresh high at 0.9616.
NZD rose to 0.7360 and consolidated around 0.7340. AUD/NZD ground slightly higher to 1.3080.
US durable goods orders down 1.3% in August. The fall reflected a renewed decline in civilian aircraft orders (-40%) and a 4.4% drop in auto orders. Ex transport orders rose 2.0% and core capital goods orders recovered 4.1%, after falling 5.3% in July. Core capital goods shipments rose 1.6% in August and July's 1.5% fall was revised to a 0.1% gain. Durable inventories rose 0.4%. So despite the negative headline, there was some positive detail in the report.
US new home sales flat in August at a 288k annualised pace. July's falls was revised from -12% to -8%. This leaves sales just above their 50 year low of 282k recorded in May. With new homes being shifted at such a slow pace, it is inconceivable that the sector will make a significant positive contribution to US economic growth anytime soon.
German IFO business climate index almost unchanged at 106.8 in September. That reflected a 1.5pt rise in the current index but a 1.3 pt decline in expectations, the second in a row from the July high point. German firms are upbeat about current activity but starting to feel some concern about the outlook, especially given the euro's appreciation in recent months and stalling economic activity in other parts of the world.
Bank of Canada's Carney on US Fed, Canadian household debt. He noted that the Fed might embark on further QE, "and we'll deal with the consequences". He said that the Canadian financial system is "firing on all cylinders" but expressed concern about the level of household debt.
AUD/USD and NZD/USD outlook next 24 hours: AUD could make a fresh high today, from minor support at 0.9550. NZD remains inside a 0.7300-0.7400 range.
.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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