Wednesday February 13, 2013 - 19:15:46 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Thursday 14 February 2013
EUR volatility was a notable feature in an otherwise subdued overnight session. Bild Zeitung reported ECB President Draghi as saying EUR strength will hurt the economy, while an influential US advisory firm predicted ECB rate cuts ahead. The EUR fell around 0.7% in response. Global risk sentiment remained positive but advanced only slightly, the S&P500 making a fresh five-year high but currently unchanged on the day. US retail sales was a mild disappointment but failed to stir markets. US 10yr treasury yields rose from 1.97% to 2.03% - an eight-day high. The auction of 10yr notes was in line with expectations.
The US dollar index (DXY) is little changed. EUR initially rose from 1.3440 to 1.3520 but then fell to 1.3426 on the above news. GBP underperformed after the BOE’s inflation report and Governor King’s comments, falling from 1.5680 to 1.5524. USD/JPY rose from 93.00 to 93.78, Russia weighing in with an opinion the yen has been overvalued. AUD dipped from 1.0360 to 1.0320 but recovered to 1.0356. NZD remained stuck in a narrow 0.8394-0.8430 range. AUD/NZD firmed from 1.2275 to 1.2310.
US retail sales rose 0.1% in Jan and core retail ex autos and gas rose 0.2%, a slower pace than the 0.8%/0.7% gains recorded in Nov and Dec. The detail showed sharp losses in personal care (–1.0%) and miscellaneous (–2.6%), gains of 0.6% to 1.1% in sporting goods, non-store, general merchandise and department store sales, and flattish growth elsewhere. This is not a weak report, but reflects consolidation after the late 2012 sales burst, supported by the December pull-forward of bonus and dividend payments to avoid the anticipated 2013 tax hikes. Income growth will fall back again from Jan, constraining the potential for further sales upside.
Other US data. Import prices rose 0.6% in Jan reversing some of their cumulative 1.2% Nov-Dec fall, with petroleum prices the main driver. Business inventories rose 0.1% in Dec mostly due to a 0.5% rise in retailer stocks. Previously reported factory stocks rose 0.1% while wholesalers shed 0.1%.
Euroland industrial production rose 0.7% in Dec but this merely reversed Nov’s 0.7% fall (revised from –0.3%). Still it was the first rise in IP since Aug, led by Germany (0.8%) and Italy (0.4%) though France and Spain were both flat. Annual production declined at a –2.4% yr pace.
Bank of England inflation report. In line with last week’s press statement, the BoE’s central projection is that inflation will average 2.4% yr over the next two years, up from the 1.8% November projection – reflecting the impact of higher university tuition fees, the weaker pound and rising energy bills. Inflation would hit the 2% target in the third year out. But the Bank reiterated that “attempting to bring inflation back to the target sooner … than currently anticipated by financial markets would risk derailing the recovery and undershooting the target in the medium term”. The Bank expects a slow but sustained recovery (weaker than in the November projection), and downside risks remain although there was “cause for optimism” about the outlook.
AUD and NZD Outlooks: Local economic events today are minor for markets. NZ has PMI, food prices and monthly consumer confidence, while Australia has inflation expectations and unemployment expectations. The BOJ meeting will be watched, as will GDP outturns in Europe.
NZD/USD 1 day: We repeat yesterday’s comment: support is at 0.8380 for a push above 0.8440.
NZD/USD 1-3 month: The positive trend since May remains intact as long as 0.8250 holds, targeting 0.8493 and beyond (0.8570 next, 0.8840+ sometime this year).
NZ 2yr swap yield 1 day: Opening today up 2bp at 2.98%.
NZ 2yr swap yield 1 month: Our next major target level is 3.18%, supported by improving NZ data and higher US yields.
AUD/USD 1 day: A break outside yesterday’s narrow range of 1.0320-1.0360 will determine direction today, the downside vulnerable.
AUD/USD 1-3 month: Remains inside an 18-month consolidation triangle, which could see it reach 1.0150 or even parity before an eventual break above 1.0600.
AUD/NZD 1-3 month: We expect 1.0225 to give way, the next major downside target 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 14 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
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. © 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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