Thursday April 25, 2013 - 21:13:17 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Morning Report
Morning Report Friday 26 April 2013
Global market sentiment: Investors continued the chase for risky assets. There was little fresh news last night, rather an expectation that the ECB would ease next week due to a weak economy (Spain’s record high unemployment rate of 27.2% illustrating the point last night) and Japan would follow through with its commitment to revive inflation. The S&P500 is currently up 0.5%, extending a five-day rally. The CRB commodities index surged 1.5%, Brent crude up 1.4%, copper +2.7% and gold +2.3%.
Interest rates: The US 10yr treasury yield rose from 1.70% to 1.72% and settled at 1.71%, a muted response to the equities rally and perhaps influenced by ECB expectations.
A 7yr auction went well, at 1bp below market yield and an on-average 2.7 bid-cover ratio. Eurozone peripherals continued to perform, Italy’s 10yr yield 12bp lower and Spain’s down 21bp – both to a 30-month low. Australia’s 3yr bond yield rose from 2.61% (fresh 4-month low) to 2.66%, while the 10yr rose from 3.16% to 3.20%.
Currencies: The US dollar index briefly spiked lower. EUR rose until midday London and then fell sharply from 1.3094 to 1.2989 following an advisory firm’s prediction the ECB will ease next week. Also of interest was a German economic advisor’s opinion the EUR might only last another five years. USD/JPY was relatively stable between 99.00 and 99.50. AUD initially firmed with equities and commodities, from 1.0295 to 1.0340, but then retreated to 1.0285. NZD similarly pushed higher to 0.8563 before falling to 0.8495. AUD/NZD extended its month-long decline to 1.2070 – a 3 ½ year low.
US initial jobless claims fell 16k to 339k in the week ended 20/4, leaving in place a claims downtrend since late last year that is consistent with the view sluggishness in the US labour market is more due to slow hiring than layoffs of existing workers.
US Kansas City Fed factory index steady at –5 in Apr, its seventh straight month at a below 0 contractionary reading, the longest such run since the 2008-09 recession. The other regional Fed factory surveys have been weak this month too.
German government economic growth forecasts little changed: 2013 was upgraded slightly from 0.4% to 0.5% and 2014 was unchanged at 1.4%. The new numbers would incorporate Q4’s 0.6% fall in GDP (which was steeper than had been expected), and a likely downgraded view on the size of the Q1 bounceback and its sustainability into Q2, given disappointing data from business surveys and recently contracting exports in annual terms for the first time since the recession in the last decade.
UK GDP growth 0.3% in Q1 in Q1 2013, just above our high end 0.2% forecast (range was –0.3% to +0.3%) and certainly stronger than generally expected. This growth pace reverses the Q4 post-Olympics contraction and means the UK avoids the triple dip recession appellation that a second consecutive quarterly contraction would have drawn. The limited breakdown showed services growing 0.6% but manufacturing down 0.3% and construction falling 2.5%.
Event risk today: Market-important events to watch today include NZ’s trade balance (a $0.5bn surplus expected), Japan’s central bank meeting (expected to reiterate inflation commitment), and US GDP for Q1 plus consumer sentiment.
NZD/USD 1 day: Intraday momentum is pointing downwards to 0.8490.
NZD/USD 1-3 month: The uptrend since June 2012 remains intact as long as 0.8160 holds. The currency benefits from NZ’s strong fundamentals plus a resurgence of NZGB inflows.
AUD/NZD 1 day: The past two days have seen downward momentum accelerate in what should be the final surge in this six-week selloff. We remain short (since 1.2560) with a trailing stop.
AUD/NZD 1-3 month: The trend decline to 1.2100 and lower remains in progress. Relative fundamentals (including RBA vs RBNZ) favour the NZD medium term.
NZ 2yr swap yield 1 day: Opening up 3bp at 2.87%.
NZ 2yr swap yield 1-3 month: The downward correction which started on 15 Feb could yet extend lower to the 2.70%-2.80% area. As long as that area holds though, we expect an eventual rise above 3.20% based on NZ’s improving fundamentals and eventual RBNZ tightening.
AUD/USD 1 day: 1.0330 should cap the AUD today, intraday momentum pointing downwards to 1.0280.
AUD/USD 1-3 month: The sideways consolidation since August 2012 remains in progress. Within that, the multi-week outlook is negative.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 26 April 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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