Wednesday July 24, 2013 - 20:06:27 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Thursday 25 July 2013
Global market sentiment: Stronger US data depressed equities but lifted interest rates and the US dollar. New home sales surged to a post-2008 high and easily beat market expectations. Manufacturing PMI also delivered an upside surprise. In contrast to the previous day, the S&P500 read the good news as bad (supports tapering) and is currently down 0.5%. The CRB commodities index is down 1.0%.
Interest rates: US 10yr treasury bond yields started rising even before the US data, European PMIís also surprising upwards. The yield rose from 2.51% to 2.62%, later settling at 2.59%. A 5yr auction was mixed, awarded at 0.5bp below market yield but with a 2.5 bid-cover ratio (vs 2.8 average).
Australian 3yr government bonds yields traced a sideways contracting range between 2.67% and 2.70%, constrained by RBA easing potential, while the10yr rose from 3.70 to 3.79%.
Currencies: The US dollar index bounced by around 0.5%. EUR initially rose to 1.3256, following the strong PMI readings, but fell after the US data to 1.3177. Rumours of a ratings downgrade for Germany may also have contributed. USD/JPY rose from 99.80 to 100.44. After falling during the day on the weaker China PMI and quasi-official comments acknowledging economic challenges, AUD extended its decline following the strong US data from 0.9235 to 0.9132. NZD similarly fell from 0.7990 to 0.7906. AUD/NZD fell to 1.1543 Ė one pip shy of the multi-year low.
US new home sales jumped 8.3% in June, the fastest monthly rise in five years, to reach a 497k annualised pace, up 38% yr.
Euroland composite PMI advance reading for July rose to 50.4, its first reading above 50 since January 2012, reflecting less contractionary French activity and expansionary readings out of Germany.
UK industrial trends survey for July showed new orders rising from -18 to -12.
Event risk today: The local highlight is the RBNZ OCR Review, which we expect will be a repeated message of the June statement. The US tonight has durable goods, jobless claims, and more.
NZD/USD 1 day: The recent upward correction has stalled, 0.7906 vulnerable. RBNZ today is a major risk.
NZD/USD 1-3 month: Following completion of this upward correction (somewhere between 0.81 and 0.83), the downtrend since April should resume and could run as far as the low 0.70ís. However, we need to see 0.7680 break down for confirmation. Fed tapering expectations will remain a depressant and NZís economic data momentum is likely to slow during the next few months.
AUD/USD 1 day: The recent upward correction may have ended at 0.9319 yesterday. The fall since then certainly looks impulsive. That suggests 0.9200 should cap price action today and 0.9132 is vulnerable.
AUD/USD 1-3 month: The downtrend since April should resume and targets the 0.80ís. The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.
AUD/NZD 1 day: An hourly head-and-shoulders neckline broke down last night, implying a move to 1.1500.
AUD/NZD 1-3 month: The downtrend since March remain strong and 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: In response to changes in US and Australian bond yields overnight (see above) the 2yr should open unchanged at 3.19%. The 10yr should open up 6bp at 4.58%. The RBNZ today is a major risk.
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 NZís 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 25 July 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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