Tuesday August 6, 2013 - 21:09:43 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Wednesday 7 August 2013
Global market sentiment: US equities fell as the case for Fed tapering was firmed slightly by improved trade data. The June trade deficit narrowed by more than expected, posing upside risks to Q2 GDP estimates. Fedspeak was also tapering-supportive, dove Evans sounding less dovish,expecting tapering to start “later this year” and possibly as early as September. Non-voting dove Lockhart wouldn’t rule out September or October. The S&P500 is currently down 0.6%.
Interest rates: US 10yr treasury bond yields bounced from 2.63% to 2.66% following the trade data but later reversed to 2.64%. A 3yr auction went well, awarded at 1bp below market.
Australian 3yr government bonds yields consolidated after the post-RBA 11bp gain, slipping from 2.58% to 2.54%. The 10yr yield similarly slipped from 3.75% to 3.71% after rising 8bp on the RBA statement which was read as less dovish than expected.
Currencies: The US dollar index fell despite the stronger data and Fedspeak. EUR rose from 1.3247 to 1.3323. USD/JPY fell from 98.60 to 97.51. AUD, which rose from 0.8920 to 0.8986 following the RBA statement, extended slightly further to 0.9005. NZD rose from 0.7840 to 0.7918, the 1.6% drop in whole milk powder prices in the international auction having little impact. AUD/NZD unwound the post-RBA gains, falling from 1.1450 to 1.1350.
US trade deficit narrowed from $44.1bn to $34.2bn in June. That is its narrowest since 2009 and reflected a broad-based 2.5% drop in imports (food, industrial supplies, consumer goods and petroleum leading the declines) and a 2.2% rise in exports, with autos the only export category to decline. This outcome should see the net exports drag on US GDP growth in Q2 revised lower.
US IBD-TIPP economic sentiment fell from 47.1 to 45.1 in Aug. The decline was evenly spread across the economic outlook, personal finances and federal policies components.
Canadian trade deficit narrowed from C$0.8bn to C$0.5bn in June, with exports up 1.4% and imports up 0.6%.
German factory orders jumped 3.8% in June, their first rise since March, driven entirely by capital goods orders (both domestic and foreign); intermediate and consumer goods orders both fell slightly.
UK industrial production jumped 1.1% in June, after being stalled for three months. The June gain was the steepest rise in over three years outside of the holiday distorted July 2012 spike. The detail showed factory output up 1.9%, its first rise since March, led by transport equipment, but the utilities were a drag on the IP bottom line for the third month running, and energy was lower too.
In other UK news, the BRC reported same store sales up 2.2% yr in July, the second fastest pace for the year so far with warmer weather boosting food sales and some Royal Baby spending likely in there too. The Halifax reported house prices up 4.6% yr in July, their fastest pace since 2010.
Event risk today: The local highlight today will be NZ’s labour data, including wage costs and the unemployment rate. The market will focus on the latter, our expectation being 6.3% which is also consensus. Australia has home loans to watch. RBA Assistant Governor Debelle will be a panel discussant in Sydney.
NZD/USD 1 day: This upward correction could extend to 0.7950. Labour data is a major risk.
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 0.70’s. Fed tapering expectations will remain a depressant.
AUD/USD 1 day: This upward correction could extend to 0.9020.
AUD/USD 1-3 month: The downtrend since April has resumed and targets the low 0.80’s 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 upward correction could extend to 1.1545.
AUD/NZD 1-3 month: The downtrend since March remains strong and targets 1.1000 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 up 3bp at 3.37%. The 10yr should open up 3bp at 4.68%.
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 7 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 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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