Tuesday August 2, 2005 - 23:12:39 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar: NZD rallies to test resistance levels
NZD/USD tried in vain to break out of the range it has inhabited for the past two weeks on Tuesday. With no local data releases, NZD trading was again subdued and took its lead from its trans-Tasman neighbour and the euro. The low was traded early in the day at 0.6830 but a recovering AUD and stronger euro helped the NZD rally to 0.6866 by the end of local trading. The bid tone continued offshore and the currency was soon trading the high at 0.6884 and testing the upper level of its two-week range. The resistance proved too strong and the NZD retreated back to 0.6870 at the close, still ensconced in the range.
Australian Dollar: Aust data supports the currency
Australian economic data placed a positive spin on the economy on Monday and increased the demand for AUD. June retail spending rose 1.3% outperforming market expectations of a 0.5% rise, reflecting broad based strength. The trade deficit shrank in June to $1.371bn, although it was not as narrow as expected it reflected a significant improvement in the Q2 deficit and a lot better than Q1. The AUD opened around 0.7620 and dipped to 0.7600 before the data releases; the encouraging numbers were the catalyst for a rally to 0.7660, an 11 day high. The AUD closed at 0.7655 and looks to test the high.
Major Currencies: USD weakens following benign US inflation
The USD weakened on Tuesday following a benign core PCE inflation reading, the reading is one of the inflation measures closely watched by the Federal Reserve. The core PCE deflator was flat for the second quarter, suggesting the Fed could be less aggressive with future interest rate increases. The USD was under selling pressure following the reading against most currencies however the USD pared some losses after other data showed upward revisions to US durable goods orders in June. The euro
rallied toward the top of its recent range of 1.2255 following the data, and it opens this morning off its highs at around 1.2195. After posting a 3-week 1.7754 high, the GBP
was sold after news that a fire on a bus triggered a security alert. The Sterling opens this morning just above 1.7700 support.
US core PCE deflator flat in June.
As usual just after the quarterly GDP figures are released, the monthly personal income and spending figures don't reveal much new. The pace of income growth in June was respectable, while consumption was quite strong, buoyed by auto sales in particular. The core PCE deflator was unchanged, and benign in the quarter. However the annual rate at 1.9% was boosted by upward revisions back in 2004, which also saw May's annual rate revised up from 1.6% yr to 2.0% yr.
US factory orders rose 1.0% in June,
with durables revised up from 1.4% to 2.0%, and non-durables posting an unexpected fall (unexpected given that energy prices rose so sharply back in May. Factory inventories were flat in June; they have not posted a rise since March, consistent with the big drag on Q2 GDP growth from business inventories.
US weekly retail reports:
chain store sales up 0.9%, fifth weekly gain in a row; Redbook up 0.3%, with July as a whole "exceeding expectations".
Euroland unemployment in June was steady at May's 8.7%,
which was revised down from 8.8% previously reported. Still very high, but at least not rising, though we think is largely due to government funded employment schemes in Germany. Also, higher energy prices and euro depreciation combined to lift the PPI back to 4.0% yr in June.
More UK survey data:
The Confederation of British Industry's retail survey remained close to the 22 year low it reached in June. However we suspect that this survey is exaggerating the extent of retail weakness. The construction PMI slipped 1.1 pts, reversing just a third of the prior month's jump to a six month high. The accompanying commentary was up-beat, noting in particular that housing construction continued to accelerate.
Country Release Last Forecast
Aust RBA Policy Announcement 5.50% 5.50%
Jul AIG PSI 52.1 n/f
Jun Dwelling Approvals 4.5% -2.0%
US Jul ISM Non-Manufacturing 62.2 62.0
Eur Jul Services PMI 53.1 53.5
Jun Retail Trade 1.1% 0.3%
UK Jul PMI Services 53.1 53.5
Jul BRC Shop Price Index
Latest Research papers/Publication
NZ Weekly Interest Rate Wrap-up (2 August)
NZ Weekly Forex Outlook (1 August)
Of free lollies and collective cavities (29 July)
RBNZ OCR Review (28 July)
A matter of balance (26 July)
A question of capacity (25 July)
NZ Weekly Forex Outlook (25 July)
NZ Weekly Interest Rate Wrap-up (25 July)
These papers/publications are available on Online Research on
Westpac Institutional Banks website (www.wib.westpac.co.nz)
(Previous days closing rates)
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 24 May 2005. 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 regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 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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