Sunday June 9, 2013 - 20:45:13 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Monday 11 June 2013
Global market sentiment: The US payrolls report was read by markets as supportive for risk appetite. The 175,000 jobs added in May beat 163,000 consensus, although the -12,000 back-revisions plus the rise in the unemployment rate leave it neutral for the QE tapering debate.
The Eurostoxx 50 closed up 1.8%, the S&P500 up 1.3%, and the CRB commodities index up 0.2%. Over the weekend China released a large batch of disappointing economic data which may weigh on sentiment today.
Interest rates: US 10yr treasury bond yields bounced on the payrolls data, from 2.05% to 2.18%. Australian 3yr government bond yields followed suit, rising from 2.44% to 2.54%, while the 10yr yield rose from 3.24% to 3.35%. The WSJ’s Fed-watcher Hilsenrath wrote a June tapering signal is likely.
Currencies: The US dollar index bounced off a multi-month low following the payrolls data. EUR/USD fell from 1.3285 to 1.3192. USD/JPY bounced from 95.00 (two-month low) to 97.78. AUD was volatile but made a fresh 30-month low of 0.94229 before settling around 0.9500 into the close. NZD fell from 0.7997 to 0.7859 – a one-year low. AUD/NZD rose from 1.1900 to 1.2055.
The weekly speculative futures positioning report revealed NZD longs were unwound further, AUD shorts reached a record level, JPY and EUR shorts were pared, and USD longs hardly changed.
US non-farm payrolls rose 175k in May, slightly ahead of market forecasts, though with 12k of downward revisions to the two previous months. The detail showed -6k factory jobs, +7k construction jobs, and just -3k government jobs, so still no significant sequester effect yet. Hours worked rose by 0.1%, following a 0.1% drop in April. The household survey played a bit of catch-up after having lagged the payrolls survey so far this year; employment rose 319k but was outpaced by a 420k rise in the labour force, leaving the unemployment rate a touch higher at 7.6%. The latest jobs figures are neither sufficiently strong nor weak to shift the debate around the timing of QE tapering, which Bernanke and others have indicated could begin later this year.
German industrial production soundly beat expectations for a roughly flat outcome, rising 1.8% in April. The numbers were bolstered by a weather-related rebound in construction, but manufacturing also rose by a solid 1.5%. Annual production growth now stands at 1%, a one-year high.
German exports rose 1.9% in April (3.4%yr), also much stronger than expected and the biggest monthly increase in almost a year. Imports rose even more, by 2.3% - another sign that German demand may have picked up from a sluggish Q1. That said, German business surveys remain soft.
Event risk today: NZ has Q1 manufacturing activity and possibly housing data, although none of these are market moving. Australia has a holiday. Markets are likely to spend the day responding to the weak Chinese data released over the weekend.
NZD/USD 1 day: 0.7859 below is vulnerable today, China data weighing.
NZD/USD 1-3 month: The uptrend since June 2012 has been broken and a decline towards at least 0.7800 is now likely. Long speculative positioning is being unwound, and NZ’s economic data momentum is likely to slow during the next few months.
AUD/USD 1 day: 0.9429 below is vulnerable today, China data weighing.
AUD/USD 1-3 month: The contracting range since July 2011 has broken down, pointing towards 0.9200 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: Towards 1.2150, relative speculative positioning favouring the AUD near term.
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 3bp at 2.95%.
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 11 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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