Tuesday June 4, 2013 - 20:20:07 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Wednesday 5 June 2013
Global market sentiment: A risk averse mood permeated markets overnight. There were no obvious catalysts, the US data posting only modest surprises (trade balance slightly exceeded, small business confidence and NY ISM slightly disappointed). The S&P500 is currently down 0.6%, while the CRB commodities index is up 0.4%.
Interest rates: US 10yr treasury bond yields ranged between 2.12% and 2.16. Fed hawk (and voter) George said there was a case for tapering QE and possibly caused a 2bp yield rise in response. Australian 3yr government bond futures similarly ranged between 2.66% and 2.69%, while the 10yr yield drifted lower from 3.46% to 3.42%.
Currencies: The US dollar index drifted slightly higher. EUR was elevated at 1.3101 until an MNI article suggested the ECB’s preferred easing approach is to narrow the spread between borrowing and lending policy interest rates. It fell to 1.3042 but later recovered to 1.3089. USD/JPY ranged between 99.89 and 100.40. AUD extended its domestic session slide from 0.9735 to 0.9612. NZD also fell, from 0.8060 to 0.7968, a 14.5% fall in spot whole milk powder prices last night perhaps worth -25 pips. AUD/NZD ranged between 1.2020 and 1.2080, suggesting neither the RBA on-hold decision had limited impact.
The US trade deficit rose to $40.3bn, a bigger deficit than expected. Both imports and exports rebounded, but imports by more so, rising 2.4% (exports rose 1.2%). Imports have now risen in three of the last four months. That said, the deficit is still well below January 2012’s recent peak.
The US IBD/TIPP economic optimism index, a consumer survey, rose to 49 in June, the highest since October last year, but a touch less than expected. There was a particularly large bounce in households’ economic outlook – the outlook for personal finances also improved, but more modestly.
Event risk today: NZ’s Q1 building work will be noticed, but the highlight for markets today will be Australia’s Q1 GDP. The US has private sector employment as an entree to Friday’s important payrolls report.
NZD/USD 1 day: Possibly a minor bounce to 0.8050 first, followed by a decline below 0.7950.
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: A minor bounce to 0.9700 first, followed by a decline below 0.9600.
AUD/USD 1-3 month: The contracting range since July 2011 has broken down, pointing to sub-0.95 during the next few months. The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.
AUD/NZD 1 day: Stuck between 1.2000 and 1.2100, but favour a break higher this week.
AUD/NZD 1-3 month: A corrective rally to at least 1.2150 is in store before the trend decline resumes below 1.1800. 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 up 2bp at 2.98%.
NZ 2yr swap yield 1-3 month: The 2.80% level should now provide solid support in the event of any corrective declines if 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 5 June 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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