Thursday February 7, 2013 - 19:00:47 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Friday 8 February 2013
The ECB frightened the bulls. Draghi’s statement and Q&A delivered a subtle warning on the EUR’s strength, seeing downside risks to inflation and growth due to its elevated level. The EUR fell 1.4% in response, and global sentiment soured. The Eurostoxx 50 closed down 0.7% while the S&P is currently down 0.5%. The CRB commodities index is down 0.5%. Unlike equities, US 10yr treasury yields did react to some weaker US data on productivity and jobless claims, falling from 1.99% to 1.93% during the London session.
The US dollar index (DXY) surged by 0.9% after the ECB release to a one-month high. Underperformer EUR initially firmed during the London morning from 1.3510 to 1.3578 but fell sharply to 1.3371 after the ECB. GBP outperformed, spiking from 1.5660 to 1.5769 before settling around 1.5700, the BOE leaving policy settings unchanged but new Governor Carney’s testimony to Parliament dampening market expectations of further QE or the adoption of a GDP target. USD/JPY fell from 93.92 to 93.08 during the London afternoon. AUD fell from 1.0339 to 1.0273 post-ECB. NZD fell from 0.8375 to 0.8297, performing poorly after a weak labour market report. AUD/NZD extended its domestic session bounce from 1.2350 to 1.2393.
US initial jobless claims fell 5k to 366k in the week of Feb 2, a relatively minor move after big swings related to seasonality distortions in January. US non-farm productivity fell 2% annualised in Q4 from 3.2% in Q3 as output slowed from 4.7% to 0.1%, consequently pushing up unit labour costs to 4.5% from –2.3% in Q3.
ECB on hold at 0.75%. In the presser ECB chief Draghi reiterated that recovery should begin later this year, but with risks remaining to the downside. Inflation risks were balanced, to the upside from commodities and administered prices, to the downside from weak growth [as before] and more recently, the appreciating exchange rate. Indeed “We will want to see if the appreciation will alter our assessment as far as price stability is concerned”, hinting that inflation risks could be tilted to the downside at some point. For today, interest rates were discussed but the decision to hold the policy line was unanimous.
German industrial production rose 0.3% in Dec, its first rise in 5 months, for an annual pace of decline of –1.1% yr.
Bank of England bank left rate at 0.5% and the APF suspended at £375bn after this week’s policy meeting, but took the unusual step of issuing a detailed statement, usually reserved for policy changes. The key point was that CPI inflation is likely to rise further in the near term and may remain above the 2% target for the next two years, in part reflecting a persistent inflationary impact both from administered and regulated prices and the recent decline in sterling. But inflation is expected to fall back to around the target thereafter, as a gradual revival in productivity growth dampens increases in domestic costs and external price pressures fade. UK industrial production rose 1.1% in Dec, led by a 1.6% surge in factory production (machinery and chemicals the drivers) reversing the Oct-Nov declines, partially offset by declining utility output. Meanwhile exports rose 3.0% in Dec, outpacing a 1% imports gain, so the trade balance narrowed by £376mn to £8.9bn in Dec.
AUD and NZD Outlooks:The RBA’s monetary policy statement today will be scrutinised for clues on how open the door is for another rate cut. China’s CPI and trade balance are reported later today, credit data tomorrow.
NZD/USD 1 day: This 4-day old correction shouldn’t go below 0.8280-0.8300, a bounce to at least 0.8350 expected today.
NZD/USD 1-3 month: The positive trend since May remains intact as long as 0.8215 holds, targeting 0.8493 and beyond (0.8570 next, 0.8840+ sometime this year).
NZ 2yr swap yield 1 day: Opening today 1bp lower at 2.88%. A slightly deeper correction to around 2.80% during the next few days would not surprise given the speed of January’s 30bp rise.
NZ 2yr swap yield 1 month: With the 2.94% medium term target attained, our next major target level is 3.18%, supported by improving NZ data and higher US yields.
AUD/USD 1 day: We are awaiting a correction of the decline since 11 Jan, targeting at least 1.0360 over the next day or two.
AUD/USD 1-3 month: Remains inside an 18-month consolidation triangle, awaiting a break higher.
AUD/NZD 1-3 month: The break below 1.2400 points to 1.2100. The technical picture is consistent with relative data flow and central bank biases.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 8 February 2013. 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
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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. © 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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