Thursday August 1, 2013 - 21:47:19 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Friday 2 August 2013
Global market sentiment: Strong economic data boosted equities, interest rates and the US dollar. Following firmer Chinese, UK and Eurozone manufacturing PMIís yesterday, US jobless claims fell and the ISM rose, raising the marketís expectations of tonightís important US payrolls report. Equities rose globally, the Shanghai Composite up 1.8%, the Eurostoxx 50 up 1.5%, and the S&P500 currently up 1.2% to a fresh record high.
Interest rates: US 10yr treasury bond yields rose from 2.58% to 2.72%, the strong global data fuelling tapering fears.
Australian 3yr government bonds yields rose from 2.58% to 2.62%. The 10yr yield rose from 3.67% to 3.78%.
Currencies: The US dollar index rose by around 1% following the strong economic data. EUR fell from 1.3280 to 1.3194. The ECB maintained its policy stance and offered no forward guidance, while the BOE provided no statement. USD/JPY rose from 98.50 to 99.50. AUD fell from 0.8990 to 0.8908 Ė a fresh three-year low. NZD fell from 0.7975 to 0.7853. AUD/NZD rose from 1.1240 to 1.1355.
US ISM factory index jumped from around 50 in Q2 to 55.4 in July, its strongest reading since 2011. The detail showed an 11 pt rise in production to a nine year high at 65, and the fastest pace of hiring in a year.
Also in the US, initial jobless claims fell 19k to 326k in the week ended 27/7, their lowest in more than five years, though possibly still distorted by seasonal auto industry shutdowns. Corporate layoff announcements were up 2.3% yr in July. Meanwhile construction spending fell 0.6% in June - residential spending was flat, government fell - but revisions were up.
European Central Bank on hold. President Draghi noted recent improved surveys ďtentatively confirm the expectation of a stabilisation in economic activityĒ but warned that market expectations of rates rises were premature and would require a much stronger outlook than the ECBís base case. He also confirmed that more timely publication of Council meeting minutes was under discussion.
Bank of England on hold and no Carney innovations apparent with the statement merely noting that the inflation report would be published next week (as previously).
European PMI roundup. The July Euro zone factory PMI was revised up from 50.1 to 50.3, confirming some recent stabilisation in the industrial sector. And the UK PMI factory jumped to 54.6, its highest in more than two years.
Event risk today: Locally Australia has Q2 PPI, adding little since CPI is known. The dayís highlight will be US non-farm payrolls, market consensus at +185,000 jobs for July.
NZD/USD 1 day: 0.8100 presents formidable resistance.
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 0.70ís. 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.
NZD/USD 1 day: Lower, targeting 0.7685 during the days ahead.
NZD/USD 1-3 month: The downtrend since April should resume (confirmed by a break below 0.7684) and could run as far as the low 0.70ís. Fed tapering expectations will remain a depressant.
AUD/USD 1 day: Lower below 0.8900, next major target 0.8770.
AUD/USD 1-3 month: The downtrend since April has resumed and targets the low 0.80ís eventually. The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.
AUD/NZD 1 day: This bounce is seen as corrective but could reach 1.1400 during the day ahead.
AUD/NZD 1-3 month: The downtrend since March remains strong and targets 1.1000 during the months, possibly weeks, 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 3.34%. The 10yr should open up 12bp at 4.75%. Tonightís US payrolls report will determine whether the 10yr breaks above 4.75% and resumes the uptrend.
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 2 August 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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