Wednesday May 29, 2013 - 21:31:08 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Thursday 30 May 2013
Global market sentiment: US and European equities faltered overnight. The Eurostoxx 50 closed 1.7% lower and the S&P500 is currently down 0.5%. European sentiment was hurt by a disappointing German unemployment report, as well as growing dissent within the ECB council regarding further easing steps (Constancio warned about negative deposit rates last night). The stall in US equities may be partly related to the recent bounces in the yen and Swiss franc, hitherto used by some to fund equity positions.
Interest rates: US 10yr treasury bond yields initially extended May’s rise from 2.20% to 2.23% - a fresh 14-month high – but reversed during the London and NY sessions to 2.12%. Fed dove (and voter) Rosengren said it’s too early to taper QE. The 5yr auction went well enough, awarded at the prevailing market yield with a bid-cover ratio of 2.8 (vs 2.8 12mth average). Australian 3yr government bond futures took the US’ lead and fell from 2.70% to 2.62%, while the 10yr fell from 3.51% to 3.41%.
Currencies: The US dollar index fell around 0.9%. EUR rose from 1.2840 to 1.2978 during the London morning. USD/JPY fell from 102.50 to 100.74. AUD rose from 0.9528 (19-month low) to 0.9671 and then traded sideways in NY. NZD similarly rose from 0.8053 to 0.8163 and then ranged sideways. AUD/NZD touched 1.1825 – a four-year low.
Bank of Canada held interest rates steady at 1.0% as expected in Mark Carney’s last meeting as Governor. The accompanying statement maintained a mild tightening bias echoing the statement from last month noting policy “will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required”.
Eurozone M3 money supply increased 3.2% in the year to April from 2.6%. The 3-month average was steady at 3.0%. Private sector lending, however, remains subdued falling 0.9% and now having contracted for 12 consecutive months. The household sector was a little more positive with an increase in loans (albeit only marginally at EUR2bn).
German preliminary CPI estimate rose 0.3% in May taking the annual rate up to 1.7% from 1.1%. The market had expected a monthly rate of 0.2%. Positive base effects from energy prices and a rise in food is likely to have driven the rebound and adds some upside risk to the Eurozone wide flash CPI estimate to be published on Friday.
German labour market data revealed a slightly softer set of numbers for May than expected with a 21k rise in unemployed (consensus +5k) although the unemployment rate remained steady at 6.9%. There was a very modest rise in total employed (+1k in April – lagged data). Despite there being some mitigating circumstances for the unusually large rise in unemployment (colder weather and higher number of public holidays), the four consecutive months of increasing unemployment suggest that there is currently underlying softness in the labour market.
Event risk today: NZ and AU building consents are minor relative to the eagerly awaited Australian CAPEX report for Q1. Also worth watching downunder is the RBNZ’s fx transactions report for April plus Governor Wheeler’s speech (8am NZT). US data tonight includes GDP revisions plus jobless claims.
NZD/USD 1 day: A corrective bounce above 0.8163 is expected but RBNZ-speak and data pose risks.
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/USD 1 day: Due for a corrective bounce to at least 0.9700 above. Watch out for CAPEX though.
AUD/USD 1-3 month: The contracting range since July 2011 is in the process of breaking down, a break below 0.9600 pointing to much lower thereafter. The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.
AUD/NZD 1 day: A corrective bounce to at least 1.1900 is due.
AUD/NZD 1-3 month: The trend decline towards 1.1800 appears to have resumed. Relative fundamentals (e.g. RBA easing to 2.0% vs RBNZ stuck at 2.5%) favour the NZD medium term.
NZ 2yr swap yield 1 day: Taking the lead from US and Australian bond yields overnight (see above) it should open down 2bp at 2.99%.
NZ 2yr swap yield 1-3 month: The 2.70%-2.80% area could yet be revisited Fed QE reduction fears subside. Late-2013, though, we expect a 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 30 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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