Thursday October 14, 2010 - 19:33:15 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Friday 15 October 2010
News and views
The London market started off with a hiss and a roar with AUD/USD pushing to a high of 0.9994, EUR/USD breaking 1.4000 and then 1.4100 barriers, and GBP/USD moving through 1.6000 but it ran out of puff as market concerns over foreclosure risk and weaker US data softened equity markets and the short end of the yield curve. EUR/USD fell back towards the mid 1.40s and AUD/USD ended the day just above its open at 0.9913. While much of the European morning's focus was on the appreciation in the AUD/USD it's worth noting that the moves were more a risk appetite move than an AUD rally in isolation. The Australian dollar strengthened against the euro, sterling and US dollar for much of the morning but weakened against other positive risk appetite currencies such as the Sweden krona and the Norwegian krone.
US equity markets opened on the back foot driven by news out yesterday that the National Association of Attorneys General would review historical foreclosure practices. Attorney generals from all 50 states said have joined together to open an investigation into whether lenders and mortgage companies falsified documents in foreclosures proceedings. Banking shares led the decline today (Bank of America -5.7%, Citi -4.7%) and, coupled with funding pressures pushing up the short end of the European curve, European markets ended up in mixed territory too. Late in the day the S&P500 was off 9pts (-0.8%). US data outturns were soft - both initial jobless claims and the US trade balance worsened and weakened relative to expectations. But key for the market going forward is Bernanke's speech tomorrow on monetary policy. Consequently, yields on the US 2s-5s swaps curve moved lower (on anticipation that any QE will occur at that part of the curve) while the US 10 year bond yield rose 7bp on the day.
US trade deficit widens to $46.3bn in Aug, in line with Westpac's forecast. Imports bounced 2.1% after falling by that much in July (and oil was not a major contributory factor), but exports rose just 0.2%, weighed down by weakness in capital goods and civilian aircraft.
US producer prices up 0.4% in Sep. The PPI was lifted by a 0.5% rise in energy prices and steeper food price gains, but the core rate was subdued at 0.1% for the second month running, despite rises in both auto and light truck prices.
US initial jobless claims rise 13k to 462k last week, even above Westpac's top of the range forecast. This rise in claims in the week prior to the monthly payrolls survey goes some way towards breaking the recent downtrend, and keeps in place concerns that the labour market is softening after some decent gains in private payrolls growth earlier this year.
Japanese corporate goods price index was unchanged in September, as expected. Over the year, corporate goods prices are 0.1% lower.
Canadian trade deficit narrows to C$1.3bn in Aug. This is the fifth deficit in six months. It reflected a 3.1% rise in exports, led by the industrial sector, and a 0.5% fall in imports, led by autos.
AUD/USD and NZD/USD outlook next 24 hours: There is no data due in New Zealand or Australian today. Most of the focus will be on US Fed Chairman Bernanke's speech, "Monetary Policy Objectives and Tools in a Low-Inflation Environment" this evening. The Chairman is likely to reaffirm the near certain odds of quantitative easing in November. The US Treasury is also expected to release their semi-annual report on FX - though the report is often delayed - where speculation once again centers on whether the US will formally cite China as a "currency manipulator". The heavy US calendar tonight also includes CPI, retail sales, the NY Empire PMI survey and consumer sentiment. AUD will find resistance once again into 0.9990-1.0000 but should find support around 0.9900. NZD/USD should run into support around 0.7550 and offers into 0.7640/50.
.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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