Tuesday October 12, 2010 - 20:32:41 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Wednesday 13 October 2010
News and views
The USD continues to trade overall on a soft footing. The USD was better bid in early dealings following earlier less dovish comments from new Fed Vice-Chair Yellen (..."accommodative monetary policy could provide tinder for a build up of excessive risk taking") and China's decision to raise reserve requirements on 6 banks. EUR/USD fell from 1.3850 to 1.3780 while AUD/USD traded through 0.9800 to lows around 0.9768 and NZD held below 0.7600. Sentiment however stabilised as the US entered the fray. The FOMC minutes gave risk appetite another leg up leaving EUR, NZD and AUD all a good 1% above their session lows. EUR retook 1.3900 and traded to highs near 1.3930, AUD traded to 0.9875 and NZD ran up to 0.7550/60 in the wake of the FOMC minutes.
EUR/USD was given an extra boost by the ECB's uber-hawk Weber who said that the ECB could lift rates before emergency measures had ended and that bond purchases should be phased out permanently. Elsewhere, given the bias for upside surprises in UK CPI, the in-line with consensus outturn of a flat monthly reading in Sep, saw GBP/USD sell-off to 1.5780 before finding some support. USD/JPY continued to test the resolve of the BoJ by grinding lower to 81.70 but as yet, there has been no further intervention.
US equities whipped around but finished the day close to flat. Treasury yields fell in early dealings (-5bp) amid a broader bout of risk aversion but reversed course and finished the day up 2bp at 2.41%. Gilts outperformed following the CPI number but the bullish tone was set earlier in the day with another soft RICS house price survey.
US NFIB small business sentiment edges up 0.2pts to 89.0 in Sep. This mainly reflected less pessimism regarding the economy (improved from -8 to -3) but the intention to hire index fell sharply from 1 to -3, its lowest in a year. This component has some predictive value for payrolls employment, and suggests downside risk ahead for the official employment data.
US economic sentiment up from 45.3 to 46.4 in Oct. The IBD-TIPP index posted its second consecutive monthly gain, due almost entirely to improved economic outlook sentiment, up 5.4 pts. Personal finances edged up 0.3 pts but Federal policy assessment fell 2.3 pts. On a related note, the weekly retail reports were mixed, chain store sales rising 0.8% after falling by 0.8% in the previous week, and Redbook up just 0.2%.
US FOMC meeting September 21 minutes. The FOMC minutes from their Sep 21 meeting did not expose as much dissension within the ranks as expected. Members believed more easing may be "appropriate before long," though any further stimulus hinged on the future economy. Many thought growth would remain too sluggish to make an appreciable dent in unemployment though saw only "small odds of deflation" and the economy was unlikely to re-enter recession. The Fed staff lowered its projections for the economy for 2H 2010 and 2011. Overall expectations for another round of easing are now set in stone.
UK CPI steady at 3.1% yr in Sep. Upside pressure came from apparel with new season price rises steeper than normal, offset by lower transport prices. The CPI has been at or above the Bank of England's 3% upper limit since the start of 2010, and will remain relatively high for most of next year once the January 2011 VAT hike kicks in.
UK trade deficit narrows GBP0.5bn to GBP8.2bn in Aug. This reflected a steeper fall in imports than exports.
UK surveys softer in Sep. The BRC retail survey found same store sales growth slowing from 1.0% yr to 0.5% yr in Sep, while the RICS surveyors' house price net balance fell from -32% to -36%, its weakest since May last year and adding to the weight of evidence pointing to renewed house price declines.
AUD/USD and NZD/USD outlook next 24 hours: NZ food prices for Sep are due today. Westpac expects a 0.5% fall due to seasonals and the higher NZD. In Australia the Westpac survey of consumer sentiment for Oct is due. Last week's decision by the RBA to keep rates steady and the strong 50k increase in employment will be important influences. AUD and NZD have both regained their composure after some heavy price action in the last 36 hours. The strong uptrend in both currencies since late Aug remains intact and they should be supported on dips. NZD should find support into 0.7500 and AUD into 0.9800.
.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
financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without
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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