Thursday May 2, 2013 - 22:51:05 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Friday 3 May 2013
Global market sentiment: US equities made a fresh record high. The key event of the day, the ECB meeting, did not disappoint , cutting the policy rate by 25bp to 0.50%. However it went further and left the door open to negative deposit rates, Draghi saying it stands ready to act if needed. The S&P500 is currently up 1.0% and commodities are also higher (CRB index +1.2%, copper +0.9%, gold +1.4%, Brent crude +2.9%).
Interest rates: The US 10yr treasury yield initially firmed from 1.63% following the ECB and then again following improved US jobless claims and trade data, peaking at 1.66% before slipping to 1.62% . Australia’s 3yr government bond yield rose from 2.50% to 2.54% and is currently at 2.52%, the 10yr firming from 3.03% to 3.07% and settling at 3.05%. Eurozone peripheral yields fell post-ECB.
Currencies: The US dollar index rose by 0.9%. EUR fell from 1.3218 to 1.3037 post-ECB. USD/JPY rose from 97.20 to 98.40 in tandem. The post-ECB USD buying initially hurt AUD/USD which fell from 1.0264 to 1.0222 although it did recover to 1.0262. NZD similarly fell from 0.8498 to 0.8456 before recovering to 0.8504. AUD/NZD ranged between1.2050 and 1.2100.
US trade deficit narrows from $43.6bn to $38.8bn in Mar. A 0.9% fall in exports was more than offset by a 2.8% slide in imports. US non-farm productivity grew 0.7% annualised in Q1, constraining unit labour costs to a 0.5% rise, their slowest quarterly gain since 2008. US initial jobless claims rose by just 324k in the week ended April 24, their lowest in over five years, indicative of a diminished pace of employee layoffs.
Canadian trade was almost balanced in March (C$0.02bn, the first month out of deficit for a year). Exports rose 5.1% while imports were up 1.7% compared to February.
ECB cuts rates 25bp to 0.50%. At the press conference ECB chief Draghi said even after today’s move the ECB Council will “ stand ready to act if needed” and would consider negative deposit rates on cash parked at the ECB by banks (the deposit rate was held at zero). Draghi was mindful of the unintended consequences of using untried policy tools such as this, was in preliminary discussion with other European institutions about the possibility of support for lending to small to medium sized businesses via measures including purchases of collaterised loans: “we will look at this with an open mind”. Risks to the outlook remained on the downside although there was evidence that policy fragmentation had not extended in the periphery. On the data front, the final April PMI for manufacturing was revised up from 46.5 to 46.7, still the lowest for the year so far.
UK PMI construction rises from 47.2 to 49.4, its least contractionary (sub 50) since October last year.
Event risk today: Australia’s Q1 PPI today holds little interest for markets given CPI is known. Trading bullets will be reserved for tonight’s US payrolls report for April, the consensus estimate being +140,000 jobs.
NZD/USD 1 day: 0.8540 should cap price action today.
NZD/USD 1-3 month: The uptrend since June 2012 remains intact, 0.8675 targeted next.
AUD/NZD 1 day: 1.2050 looks vulnerable to giving way during the days ahead.
AUD/NZD 1-3 month: The trend decline towards 1.2000 remains in progress. Relative fundamentals (including RBA vs RBNZ) favour the NZD medium term.
NZ 2yr swap yield 1 day: Opening 1bp higher at 2.82%.
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 in 2014.
AUD/USD 1 day: Near term momentum is negative, arguing for a break below 1.0220
AUD/USD 1-3 month: The sideways consolidation since August 2012 remains in progress. Within that, the multi-week outlook has just flipped back to negative, a break below key 1.0220 then pointing to 1.0100.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 3 May 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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