Wednesday June 26, 2013 - 20:38:00 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Thursday 27 June 2013
Global market sentiment: Sentiment improved for a second consecutive day. The Eurostoxx 50 rose 2.3% while the S&P500 is currently up 1.0%. ECB chief Draghi repeated the bond purchase program is ready to be activated if necessary, and ECB member Noyer said it was monitoring the fallout from the Fed signal closely and it stood ready to act. US GDP was surprisingly revised much lower, from 2.4% to 1.8%, but equity markets appeared unfazed.
Interest rates: US 10yr treasury bonds yields fell from 2.59% to 2.51%, taking heart from the weak GDP data. Demand at a 5yr auction was subdued, though, awarded at 0.5bp above market yield with a bid-cover ratio of 2.5 (vs 2.8 average).
Australian 3yr government bonds yields fell for the third consecutive day, from 2.92% to 2.85%.The 10yr yield similarly ranged between 3.80% and 3.87%.
Currencies: The US dollar index immediately fell following the GDP data but rebounded within a couple of hours to be up 0.4% on the day to a four-week high. EUR was under pressure all day, falling from 1.3080 to 1.2985, dovish ECB policymaker comments possibly weighing. USD/JPY fell and rose for little change at 97.80. AUD rose after the US data to 0.9345 but fell in NY to 0.9246. NZD rose from 0.7740 to 0.7861and fell in NY to 0.7761. AUD/NZD fell from 1.1980 to 1.1885.
US GDP growth revised down from 2.4% to 1.8% annualised in Q1. The downward revision was due to lower personal consumption (–0.6 ppts) of services, lower business investment (–0.2 ppts), offset by a lesser drag from net exports (adding 0.1 ppt). Given that Q4 saw growth of just 0.4% annualised, the economy in the 6 months to March expanded at a 1.1% annualised pace, just half the pace recorded in the previous half year ended Sep 2012, and barely a third of the 3.1% annualised pace recorded in the same six months a year ago (ie Q4 11-Q1 12). Next month’s advance report for Q2 GDP will include benchmark revisions stretching right back to the 2008 recession, and these can alter the picture significantly of course.
German consumer confidence rose from 6.5 to 6.8 in July, but surveyed early June, its highest since late 2007.
UK Chancellor Osborne detailed £11.5bn worth of spending cuts that will be implemented from April 2015, around the time the next election is due. That is equivalent to a 2.7% cut in real terms, described as necessary because “we have to deal with the world as it is, not as we wish it to be... the challenges from abroad have grown”. That would extend the current fiscal austerity round into its sixth year, provided the government is re-elected.
Event risk today: Locally we have NZ trade balance and monthly business confidence, minor market movers. There’s also a speech from the RBNZ on macro-prudential tools to watch. The US has many data releases tonight, including the core PCE deflator (a Fed-preferred inflation measure).
NZD/USD 1 day: This corrective bounce enters its third day and could run past 0.7860.
NZD/USD 1-3 month: A three-year trend support line was broken last week at 0.7760 and if sustained this week argues for 0.7455 next. Fed tapering expectations will remain a depressant and NZ’s economic data momentum is likely to slow during the next few months.
AUD/USD 1 day: This corrective bounce enters its third day and could run past 0.9345.
AUD/USD 1-3 month: The 16 May decisive break below a two-year contracting range was a very bearish signal pointing towards 0.9200 initially. Technically it could run as far as the low 0.80’s. The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.
AUD/NZD 1 day: Bouncing around a wide range near term with 1.2100 possible.
AUD/NZD 1-3 month: June’s consolidation persists but should eventually resume the trend decline towards 1.1500, possibly as far as 1.1100. Relative fundamentals (e.g. RBA easing to 2.0% vs RBNZ stuck at 2.5%) favour the NZD medium term.
NZ swap yields 1 day: Taking the lead from US and Australian bond yields overnight (see above) the 2yr should open down 6bp at 3.17%. The 10yr should open down 5bp at 4.54%.
NZ swap yields 1-3 month: The uptrend since June 2012 remains intact. By late-2013 we would expect to see the 2yr above 3.40% based on NZ’s improving fundamentals and eventual RBNZ tightening in 2014. The US-influenced 10yr yield has also confirmed its uptrend and targets 4.68% next.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 27 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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