Sunday July 14, 2013 - 21:55:02 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Monday 15 July 2013
Global market sentiment: A dose of negative Eurozone news supported US asset classes – equities, currency and interest rates. France was downgraded by Fitch from AAA to AA+, matching its rating from S&P and Moody’s. In Portugal, the President threatened to call early elections. US consumer confidence disappointed but had little market impact. Fedspeak was balanced, hawk Plosser’s call for year-end cessation of QE offset by Bullard’s opposition to tapering while disinflation persists. The S&P500 closed up 0.3% at a two-month high.
Interest rates: US 10yr treasury bond yields initially dipped to 2.52% but rose in NY to 2.60%.
Australian 3yr government bonds yields initially dipped from 2.72% to 2.65% but completely retraced in NY, while the 10yr yield traced a 3.74% to 3.70% to3.78% path. French bonds were fairly stable but Portugal’s 10yr yield surged from 7.00% to 7.82%.
Currencies: The US dollar index rose and fell for a modest net gain. EUR fell from 1.3080 to 1.3000 and then bounced to 1.3091 in NY. USD/JPY rose from 98.80 to 99.70 and then consolidated. AUD fell from 0.9180 to 0.8999 – a three-year low – before settling around 0.9050. NZD fell from 0.7860 to 0.7753 and then consolidated. AUD/NZD slipped to 1.1586 – a five-year low.
CFTC’s speculative futures positioning report revealed little change to modest NZD shorts and extreme AUD shorts, but EUR and JPY shorts increased.
Euroland industrial production fell 0.3% in May (1.3%yr), the second monthly decline this year so far. ECB Council member Couere acknowledged the risk that economic recovery might be delayed a few quarters, consistent with ECB chief Draghi’s admission last week that the economy was still contracting. Both comments suggest that the ECB Council now accepts that the downside risks to its June staff forecast are crystalising. This suggests policy-makers are considering implementing non-standard measures that will push to the very limits of the ECB’s mandate, generously interpreted - as Draghi has been saying for several months now at his press briefings.
Portugal is once again at centre stage with the Opposition leader insisting that austerity be abandoned, just hours after the President invited his party to cooperate with the imploding coalition government ahead of early elections. Bond yields spiked back towards 8% on the view that there is diminishing prospect of a smooth transition back to market access when the current Portuguese bailout ends in June 2014. Meanwhile, Fitch stripped France of her AAA rating bringing them into line with the other major ratings agencies.
The US producer price index rose 0.8% in June on higher gasoline prices, while the core PPI rose 0.2% with auto prices a factor. The preliminary Uni of Michigan consumer sentiment index dipped 0.2 pts to 83.9 in July: a new cycle high for current conditions was offset by deteriorating expectations about the future.
Event risk today: Locally, NZ services PMI is minor, as is Australian vehicle sales. China’s Q2 GDP will be the day’s highlight, consensus at 1.8% qoq. There’s also industrial production, retail sales and others.
NZD/USD 1 day: China data today is a negative risk and 0.7750 could be tested.
NZD/USD 1-3 month: A break below multi-year trend support in June points to 0.7455 next, although we need to see 0.7680 break down for confirmation. 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: Given China data today is a negative risk, above 0.9100 will be difficult.
AUD/USD 1-3 month: The 16 May decisive break below a two-year contracting range was a very bearish signal pointing towards the 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: It broke 1.1650 neckline support on Friday and that level should cap it today.
AUD/NZD 1-3 month: The multi-month trend decline targets 1.1500 next, 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 unchanged at 3.19. The 10yr should open up 1bp at 4.56%. That said, we expect yields to fall in corrective fashion during the week ahead.
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 4 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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