Thursday May 16, 2013 - 20:34:01 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Friday 17 May 2013
Global market sentiment: Another batch of weaker US data hurt the US dollar and depressed interest rates. However, the WSJ’s influential Fedwatcher, Hilsenrath, wrote the Fed isn’t too concerned about falling inflation since future inflation expectations are stable. That may have comforted the equity markets, the S&P500 currently unchanged.
Interest rates: US 10yr treasury yields corrected lower for the second consecutive day, falling from 1.95% to 1.86% in a clear response to the weaker US data. The 2-10yr yield curve flattened by 6bp. Australian 3yr government bond yields followed suit, falling from 2.58% to 2.49% while the 10yr yield fell from 3.26% to 3.16%
Currencies: The US dollar index is around 0.3% lower. EUR rose from 1.2847 to 1.2930. USD/JPY fell from 102.68 to 101.83. AUD initially fell to 0.9798 – a fresh one-year low – but then bounced to 0.9882 as the USD weakened. NZD similarly made a six-month low of 0.8139 before bouncing to 0.8209. AUD/NZD rose from 1.1960 to 1.2050.
The US Philadelphia Fed factory index followed on the heels of Wednesday’s New York survey, diving to -5.2% from 1.3% in April – well below market expectations for a modest rise, but more in line with our view that we would start seeing a mid-year slump in the US survey data, much as in 2010-12.
US housing starts plunged 16.5% from their March cycle high to 853k, well below expectations. This was largely due to a 38.9% correction in the volatile multiples component from March’s 25.6% increase, but singles also fell 2.1% after March’s 4.4% fall.
The US CPI came in below expectations at -0.4% in April (1.1%yr). Falling energy prices and subdued food inflation contributed to the weakness, but core CPI was also very benign at 0.1% (1.7%yr) vs mkt 0.2%. The important shelter component continued to rise, but medical care prices fell.
US initial jobless claims for w/e 11 May unexpectedly jumped 32k to 360K, from last week’s cycle low. While volatile, jobless claims have been steadily trending down this year. Lack of hiring, not firing, is holding the US jobs recovery back.
Event risk today: NZ has monthly consumer confidence and PPI, the latter information redundant for markets since CPI is known. US consumer confidence tonight will be watched.
NZD/USD 1 day: The sharp decline this month is in need of a corrective bounce towards 0.8300 over the next few days before the larger decline can resume to sub-0.8140.
NZD/USD 1-3 month: The uptrend since June 2012 has been broken and a decline towards 0.7800 is looking increasingly likely. Local fundamentals remain supportive but extreme long speculative positioning warns of a cleanout.
AUD/NZD 1 day: Appears to have bottomed near-term, above 1.2050 signalling a further push to around 1.2200.
AUD/NZD 1-3 month: The trend decline to sub-1.1960 should resume once this corrective bounce is complete. Relative fundamentals (e.g. RBA easing to 2.0% vs RBNZ stuck at 2.5%) favour the NZD medium term.
AUD/USD 1 day: A corrective bounce may have started last night. Above 0.9880 would confirm that and target as high as 1.0000 during the next few days.
AUD/USD 1-3 month: The contracting range since July 2011 is in the process of danger of breaking down, 0.9600 the next major target. The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.
NZ 2yr swap yield 1 day: Should open down 3bp 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.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 17 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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