Tuesday June 11, 2013 - 20:53:58 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Wednesday 12 June 2013
Global market sentiment: Risk appetite was curbed in the wake of the Bank of Japanís decision not to add further stimulus. The Nikkei 225 closed down 1.5%, the Eurostoxx 50 -1.3%, with the S&P500 currently down 0.7%. Markets had hoped for additional BOJ measures which may have led to increased investment flows from Japan into global asset markets. Also hurting risk appetite was an advisory report the Fed would taper from September.
Interest rates: Tapering fears persisted. US 10yr treasury bond yields initially rose from 2.21% to a 14-month high of 2.29% before reversing sharply during the London afternoon to 2.17%. A 3yr auction was weak, awarded at 1bp above market yield and with a bid-cover ratio of 3.0 (vs 3.6 12-auction average). Australian 3yr government bond yields followed suit, initially rising from 2.56% to 2.64 and reversing to 2.57% during the London afternoon, while the 10yr yield rose from 3.42% to 3.49% before reversing to 3.40%.
Currencies: The US dollar index was under pressure throughout and is testing a four-month low. EUR was volatile amid the German court proceedings on the ECBís proposed bond-buying program. It ranged between 1.3232 and 1.3316 Ė a three-month high. USD/JPY fell from 98.45 to 95.60 following the BOJ disappointment. AUD initially fell with USD/JPY from 0.9425 to 0.9326 Ė a 33-month low Ė but recovered with US equities to 0.9457. NZD similarly fell from 0.7890 to 0.7761 and rebounded to 0.7893. AUD/NZD spiked from 1.1940 to 1.2010.
US NFIB small business optimism rose to 94.4 in May, above expectations and the highest since May last year. The hiring intentions component of this survey can be useful as a US employment gauge. That component inched down from 6 to 5, still the second highest in 6 months.
Event risk today: The local calendars are minor for markets. NZ has electronic retail spending and possibly REINZ housing data. Australia has consumer confidence.
NZD/USD 1 day: A corrective bounce towards 0.7950.
NZD/USD 1-3 month: We saw the first test of the critical 0.7800 support area yesterday. That test failed but we are watching for further attempts, any break below then targeting 0.7455. Long speculative positioning is being unwound, and NZís economic data momentum is likely to slow during the next few months, all adding to the bearish case.
AUD/USD 1 day: A corrective bounce toward 0.9500.
AUD/USD 1-3 month: The contracting range since July 2011 has broken down decisively, 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: Stuck in a sideways contracting 1.1940-1.2030 range.
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 1bp 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 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 12 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 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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