Monday June 10, 2013 - 20:46:27 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Tuesday 11 June 2013
Global market sentiment: The news flow was mixed. The US’ sovereign rating (AA+) outlook was upgraded from negative to stable by Standard and Poor’s, citing improved policymaking and increased tax remittances. That pushed the S&P500 to a six-day high.
However sentiment was checked when ECB-chief Draghi revealed in a TV interview that rates will rise again when there is confidence in an economic recovery and that the yet-to-be-used bond buying program has limits and insolvent states will be allowed to default. The Eurostoxx 50 closed down 0.2%, the S&P500 is currently unchanged.
Interest rates: US 10yr treasury bond yields ground higher throughout the evening, from 2.15% to 2.23%, matching the one-year high made on 29 May. Australian 3yr government bond yields followed suit, rising from 2.50% to 2.57%, while the 10yr yield rose from 3.32% to 3.39%. Fed dove Bullard gave a balanced speech, noting labour market improvement but also surprisingly low inflation, the latter an obstacle to tapering QE.
Currencies: The US dollar index firmed after the ratings action but reversed after Draghi for little net change. EUR initially fell from 1.3230 to 1.3183 but then rose to 1.3269. USD/JPY rose from 98.40 to 99.28 and then slipped back to 98.51. AUD rose from 0.9399 to 0.9481. NZD rose from 0.7842 to 0.7924. AUD/NZD slipped from 1.2000 to 1.1955.
German Sentix investor confidence rose broadly in line with expectations, from -15.6 to -11.3. The survey has been improving modestly for two months now, but remains soft. In the details both current conditions (still very bleak) and expectations (now back in modestly optimistic territory) improved.
Event risk today: Australia has housing finance and business confidence, both minor for markets. The BOJ meeting is perhaps the day’s highlight and we will be looking for measures to calm its bond and equity markets (the Nikkei has lost 21% in three weeks).
NZD/USD 1 day: This rally from 0.7819 should fizzle out before 0.8015.
NZD/USD 1-3 month: Behaviour at the critical 0.7808 support level will decide multi-month direction. Any break below would then target 0.7455. Long speculative positioning is being unwound, and NZ’s economic data momentum is likely to slow during the next few months, all adding to the bearish case.
AUD/USD 1 day: The bounce from yesterday’s low of 0.9394 is hesitant and likely to peter out before 0.9575.
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 1.2050, 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 2bp at 2.99%.
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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