Tuesday July 30, 2013 - 21:27:20 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Wednesday 31 July 2013
Global market sentiment: Risk appetite again appeared subdued. US consumer confidence and house prices disappointed, and there was caution ahead of the 2-day FOMC meeting which started last night. The S&P500 is currently unchanged, and the CRB commodities index is down 0.7% (copper down 2.1% on Chinese provincial growth disappointment).
Interest rates: US 10yr treasury bond yields traced an expanding sideways range between 2.57% and 2.61%, reluctant to break out ahead of the FOMC statement.
Australian 3yr government bonds yields consolidated the post-Stevens 10bp decline, ranging between 2.58% and 2.62% - the former a one-month low. 10yr yields partly retraced the decline, rising from 3.71% to 3.76%.
Currencies: The US dollar index extended the previous day’s rebound. EUR initially rose from 1.3270 to 1.3302 (one-month high) following improved EZ economic confidence data, but then fell to 1.3235 on rumours the US may announce profit-repatriation incentives. USD/JPY ranged between 97.76 and 98.34. AUD initially started to retrace the downward reaction to RBA Governor Stevens’ speech, but then followed the USD bounce by pushing lower to 0.9044 and then drifting sideways in NY. NZD similarly fell from 0.8015 to 0.7958. AUD/NZD hovered just above the five-year low of 1.1335 set yesterday.
US consumer confidence slipped from 82.1 to 80.3 in July (in line with our forecast), still the second highest reading since early 2008. The present index rose for the fourth month running helped by a multi-year high for the job market sentiment index, but expectations slipped for the first month since March.
US house price inflation accelerated slightly from 12.1% yr to 12.2% yr in May according to the S&P-CS 20 city index. That is the fastest pace since early 2006 but the slowest increment to the annual pace since late 2011 and reflected a 1.1% rise in the month. Low mortgage rates (at the time – they have since risen) and short supply have been key factors behind the run-up in prices in this hitherto troubled sector.
Canadian industrial product prices rose 0.3% in June, their first rise since February, as the weaker C$ lifted auto prices, for a 0.6% yr annual pace.
Euroland economic confidence rose from 91.3 to 92.5 in July, the highest since April last year. In related news, the business climate index improved from -0.67 to -0.53 in JuIy.
German inflation picked up from 1.8% yr to 1.9% yr in the preliminary index for July, while the August GfK consumer confidence index (surveyed early July) rose from 6.8 to 7.0, its highest in almost 7 years.
Event risk today: NZ has monthly business confidence, as well as Fonterra’s update of the milk payout forecasts. Australia has private sector credit. The highlight of the global calendar will be the FOMC decision, although there’s a large batch of economic data to watch hours beforehand, including Q2 GDP.
NZD/USD 1 day: Possibly a minor bounce off the overnight low of 0.7958 towards 0.8015, Fonterra a possible catalyst.
NZD/USD 1-3 month: Following completion of this upward correction (somewhere between 0.81 and 0.83), the downtrend since April should resume (confirmed by a break below 0.7684) and could run as far as the low 0.70’s. However, 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: Possibly a minor bounce off the overnight low of 0.9044 towards 0.9100.
AUD/USD 1-3 month: The downtrend since April should eventually resume (below 0.8999 would confirm such) and targets 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: 1.1334 below is vulnerable.
AUD/NZD 1-3 month: The downtrend since March remains strong and targets as far as 1.1100 during the months ahead. 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 3.31%. The 10yr should open up 1bp at 4.65%. The RBNZ’s shift to an explicit tightening stance last week will impart an upward bias to rates from now onwards.
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 31 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 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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