Thursday May 30, 2013 - 20:25:43 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report day 31 May 2013
Global market sentiment: US equities bounced moderately, helped by weaker US data. GDP was revised down from 2.5% to 2.4%, jobless claims rose, and pending home sales slowed. All this supported the view the Fed should continue with its stimulus programs which are beneficial for equities, commodities, and bonds, but hurtful for the US dollar. The S&P500 is currently up 0.7%.
Interest rates: US 10yr treasury bond yields rose from 2.10% to 2.16% pre-US data but reversed to 2.09% post. The 7yr auction was well subscribed, awarded at 2bp below the prevailing market yield with a bid-cover ratio of 2.7 (vs 2.7 12mth average). Australian 3yr government bond futures traded sideways in a contracting range between 2.61% and 2.65%, while the 10yr ranged between 3.39% and 3.43%.
Currencies: The US dollar index fell by around 0.9% following the US data. EUR rose from 1.2940 to 1.3060. USD/JPY rose from 100.50 to 101.80 and then reversed to 100.69 post-data. AUD dipped from 0.9690 to 0.9583 and fully recovered post-data. NZD similarly traced 0.8120 to 0.8005 to 0.8110. AUD/NZD rose from 1.1910 to 1.1980.
US Q1 GDP growth was revised down a touch in the second estimate, from 2.5%saar to 2.4%, on the back of a bigger than expected drop in exports. There were also downward revisions to inventories and construction. More positively, consumption (already a strong point of the Q1 GDP result) and equipment investment were revised up slightly.
US initial jobless claims for the w/e 25 May rose a little to 354k, against flat expectations. Overall claims are averaging 350K thus far in May, above Aprilís 341K but similar to the first three months of the year.
Event risk today: NZ has terms of trade and monthly business confidence Ė both potential market movers. Australia has private sector credit. Europe has CPI inflation and unemployment. In the US, the PCE deflator will be watched since it is one of the Fedís preferred measures of core inflation.
NZD/USD 1 day: This 5-day corrective bounce should continue past 0.8150 above.
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: This 2-day corrective bounce should continue past 0.9700 above.
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: This 2-day corrective bounce should continue past 1.1980 above.
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 unchanged at 2.96%.
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 NZís 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 16 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 Westpacís
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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