Monday October 4, 2010 - 20:31:20 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Tuesday 5 October 2010
News and views
A relatively quiet data day with Australia on holiday yesterday. Headlines were negative on Europe and for a change actually weighed on the euro. EUR/USD gave up all of Friday's gains ending just below 1.3700, down 0.8% from Friday's close. Tellingly, the most dramatic mover was EUR/CHF, down just over one percent from a high of 1.3467 to a 1.3292 low - a typical safe haven investment. EUR/GBP fell below 0.8650, this resilient cross is also evidence of the weakness in Europe permeating through. The European news took many forms - market concerns surrounding political backlash to more budget cuts in Portugal; headlines that euro officials are taking a harder line against the strength in the yuan (Wen is meeting with officials tomorrow); and French President Sarkozy (in his new role as G20 chairman) stating he wants greater "world monetary regulation".
Elsewhere US pending home sales rose by 4.3%, comfortably above expectations for a 2.5% gain but that gave the markets no relief. Equity markets followed the theme of paring back of risk and the majority of stock indices were in the red throughout the day. News that the US Justice Department will sue Visa, AMEX and Mastercard following a 2 tier antitrust investigation also weighed on sentiment. The Dow shed 93pts or -0.9%. US Treasuries resumed their curve flattening with the US 10 year yield holding below 2.5% during overnight trading. Gold fell $3/oz and copper shed 0.8%. European credit markets were broadly unchanged overall - Spanish and Portuguese bond auctions later this week with be its focus.
Negative news out of Europe and heavy US equities saw both AUD and NZD trade with an offered tone overnight. The NZD drifted down from the 0.7430/40 region in early offshore dealings to lows just below 0.7400. The AUD relinquished the 0.97 handle overnight and traded to a session low of 0.9653. The local session starts with both AUD and NZD a touch off their overnight lows at 0.9670 and 0.7415.
US pending home sales rose 4.3% in Aug. This followed a similar rise in July, suggesting sales have formed a base following their 30+% plunge in May-June after the end of the tax rebate for homebuyers. These numbers are not strong enough to suggest a housing recovery is underway.
US factory goods orders fall 0.5% in Aug. The previously reported 1.3% fall in durable goods orders was revised to -1.5% while the non-durables component was up 0.3%. The report also found a very subdued 0.1% rise in factory inventories.
Euroland Sentix investor confidence rose slightly from 7.6 to 8.8 in Oct, essentially unchanged for three months now at its highest since 2008. It seems that news on recent economic activity and trading partner growth has combined to keep confidence high, while euro appreciation and ongoing sovereign debt concerns have prevent substantial further confidence gains. In other news, the Euroland PPI rose 0.1% in Aug which pulled the annual pace back from 4.0% to 3.6% yr.
UK PMI construction rose from 52.1 to 53.8 in Sep, its first rise in three months, though the index remains well below the 58+ range it peaked at during Q2.
AUD/USD and NZD/USD outlook next 24 hours: The Q3 NZIER business confidence survey is due this morning but the main focus will be on Australia with the RBA October policy announcement. Informed commentators fully expect a 25bp hike and markets are pricing in a 75% chance. A hawkish statement signalling more hikes to come will see AUD comfortably retake the 97-handle and retest its recent 0.9750 highs. A less hawkish "wait and see approach" from the Bank will likely see the AUD sold into any short term spike around the announcement. The August Australian trade balance and retail sales are also due but they will be of secondary interest to the RBA.
.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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