Monday June 20, 2005 - 21:53:59 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar: NZD gains stall ahead of 0.7200
NZD/USD strengthened yesterday from its opening level of 0.7160, the USD under pressure following the release of a larger than expected US current account deficit. However, the currency stalled after hitting intraday highs of 0.7183. Despite an initial extension of gains to 0.7192 in the offshore session, the market failed to break above 0.7200 as renewed euro weakness (following the failed weekend European Summit) began to exert downward pressure on NZD/USD. After touching overnight lows of 0.7138, the currency stabilised around 0.7145, where it opens this morning.
Australian Dollar: AUD 0.7800 remains intact as US gains weigh on AUD
US funding concerns, political turmoil in Europe and soaring commodity prices all helped galvanise the AUD as the markets opened yesterday. With Q1 housing starts broadly in line with forecasts, the currency was again marked higher, touching intraday highs of 0.7790. The market failed to make a serious assault on 0.7800 however, and USD buyers re-emerged during the overnight session. Higher interest rate expectations in the US coupled with reports of a potential cut in European rates, saw the euro move sharply lower. Renewed USD interest also weighed on the AUD, which slipped from overnight highs of 0.7792 to this morning’s opening level of 0.7755.
Major Currencies: USD makes ground on report, ECB is considering rate cut
The USD strengthened broadly on Monday led by heavy selling pressure on the euro. Reuters reported that the ECB is waiting for more data before deciding whether an interest rate cut is justified. A cut in interest rates would potentially boost the eurozone’s flagging economy, but would also weigh on the currency with investors attracted to currencies offering higher rates of return. After holding above 1.2200 during local trading, the euro
was sold down to a 1.2125 and opens around 1.2140 this morning. With no Japanese data of note the USD drifted higher against the yen yesterday and opens this morning at around 109.35.
BoJ minutes again explain 'technical' adjustment.
The BoJ took great pains to further explain the technical shift in the QE easing policy in the minutes to their late May meeting. In case you haven't got the message yet, with systemic risk concerns substantially diminished, the existing liquidity target is difficult to maintain 24/7. So they are pragmatically acknowledging that by allowing some flexibility in terms of the target. They are not easing policy.
US leading index drops.
May leading indicators dropped 0.5%, more than expected. However, that was offset by April being revised up 0.2 percentage points to flat. April aside, the indicator has fallen in every other month to date this year. Nine of the ten index components fell, with the recent flattening of the yield curve the main contributor. June should see a better result given that the yield curve should exert less drag after the recent bond sell-off and consumer confidence appears on the mend.
Country Release Last Forecast
21 Jun Eur Q1 Labour Cost Index %yr 2.4% 2.2%
Ger Jun ZEW Survey Index 13.9 17.2
22 Jun NZ Q2 Consumer Confidence 126.7 n/f
Aust Apr WBC-MI Leading Index 0.0% n/f
May Motor Vehicle Sales 2.0% -1.5%
Jpn May Trade Balance ¥bn 712 680
UK Jun BoE Policy Meeting Minutes
23 Jun NZ Q1 Current Acct Qtr NZDmn -3,108 -1,121
US May Existing Home Sales 4.5% 1.0%
Latest Research papers/Publication
f• NZ Weekly Forex Outlook (20 June)
• NZ Weekly Interest Rate Wrap-up (20 June)
• NZ Q1 GDP Preview (17 June)
• NZ Q1 Current Account Preview (17 June)
• M&A Update - More support for the NZD (17 June)
• NZ Weekly Forex Outlook (13 June)
• NZ Q1 Terms of Trade Review (10 June)
• NZ Weekly Interest Rate Wrap-up (10 June)
• RBNZ June MPS Review (9 June)
These papers/publications are available on Online Research on
Westpac Institutional Bank’s website (www.wib.westpac.co.nz)
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 24 May 2005. 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 Westpac'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 regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 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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