Monday February 25, 2013 - 19:51:29 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Morning Report
Morning Report Monday 26 February 2013
Global market sentiment: Risk sentiment was initially buoyed by the weekend’s reports of a dovish appointment to the Japanese central bank but soured after Italian election projections indicated a possibly hung Parliament. The S&P500 is currently down 0.6% after falling 1.3% on the Italian news. Commodities were resilient, Brent oil +0.5%, copper+0.3% and gold +0.5%, but non-traded iron ore fell 1.1%.
Interest rates: US 10yr treasury yields initially firmed from 1.96% to 2.00% but then fell to 1.88%, Catalysts included Italy, a disappointing Dallas manufacturing survey, and an article from influential Fed-watcher Hilsenrath saying a tapered, rather than abrupt, exit from QE will be the likely approach when economic conditions allow. The 2-10yr curve is 8bp flatter at 164bp. A 2yr auction was disappointing (3.3 bid-cover ratio vs 3.8 average), caution ahead of Bernanke’s testimony cited.
Australian 3yr bond (futures yields) initially bounced from 2.85% to 2.90% before slumping to 2.81%.
Currencies: The US dollar index (DXY) was volatile but is net unchanged. EUR initially rose from 1.3190 to 1.3319 before falling to 1.3159 on Italy. USD/JPY fell on profit-taking from 94.30 to 93.21. AUD mimicked the EUR, rising from 1.0273 to 1.0328 before falling to 1.0274. NZD similarly rose from 0.8360 to 0.8414 before retreating to 0.8370. AUD/NZD ground from 1.2290 to 1.2260.
US Dallas Fed factory index slipped from 5.5 to 2.2 in Feb, reversing Jan’s rose, but remaining positive for the third month running after contractionary readings in seven of the eight previous months. This more or less repeats the pattern of the last few years - turn of year gains followed by mid year slump - and is probably a function of distorted seasonal adjustment factors (affecting many US data series since the post Lehmans economic slump) as much as genuine swings in sentiment. The detail showed production, orders and jobs all recording slower growth in Feb.
US Chicago Fed national activity indicator slowed from 0.25 to –0.32 in Jan. This index is based on 80+ data series and reflects a softer overall activity picture than in Nov-Dec.
UK mortgage lending slowed from 33.4k new loans in Dec to 32.2k in Jan according to BBA data covering ~70% of the market, the lowest since Sep.
Italian election outcome. Exit polls show Silvio Berlusconi’s centre right coalition leading the vote in the Senate, while the market preferred Bersani centre-left alliance looks to have secured the lower house. Fears that could make for an unworkable government saw risk assets lose ground during the London afternoon.
Event risk today: NZ’s inflation expectations report is often a market mover, particularly since the RBNZ said last year it is highly influential for monetary policy. Also closely watched will be RBA Assistant Governor Debelle’s speech on the exchange rate’s effect on the economy (recall last week’s RBNZ speech on a similar topic caused a 0.6 cent fall in NZD/USD). Tonight Fed Chairman Bernanke testifies to the Senate on monetary policy. On top of all of that there’s an APEC meeting of central bankers which may create the odd headline.
NZD/USD 1 day: 0.8420 should provide a ceiling, 0.8315 at risk of being tested today.
NZD/USD 1-3 month: The positive trend since May remains intact as long as 0.8300 holds, targeting 0.0.8535 and beyond (0.8840+ sometime this year).
NZ 2yr swap yield 1 day: Opening today down 3bp at 2.96%.
NZ 2yr swap yield 1-3 month: Our next major target level is 3.18%, supported by improving NZ data and higher US yields.
AUD/USD 1 day: The 1.0260 minor support level is at risk today, beyond that 1.0225 is critical.
AUD/USD 1-3 month: Remains inside an 18-month consolidation triangle, which should see it reach 1.0150 before an eventual break above 1.0600.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 26 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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