Wednesday August 10, 2005 - 21:11:13 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar: NZD tests 0.6960 again
NZD/USD opened on its lows yesterday morning and immediately started climbing. It briefly stalled mid morning before again pushing higher in the afternoon. The NZD remained near a four week high against the AUD in response to concerns about the narrowing interest rate premium over the USD. Offshore trading saw the NZD test 0.6960 again but the currency faced strong resistance and was unable to break through this level. Range trading continued the remainder of the offshore session and the currency opens around 0.6950 this morning.
Australian Dollar: AUD faces an uphill battle
AUD/USD retained its grip on 0.7600 yesterday opening just above the level. The currency rallied during the morning session aided by a strong result in the August consumer sentiment survey. It rose 7.6% for August and offset the 5.5% fall in July. AUD/USD continued to climb in overnight trading and posted an intraday high of 0.7663 before softening slightly. Support at 0.7630 held however and the currency opens around 0.7650 this morning.
Major Currencies: JPY gains on China comments
The US dollar fell steeply against the Japanese yen
last night, chiefly on the back of comments out of China about the weighting of currencies in the yuan basket. This transparency was viewed as positive for the Asian region with JPY strengthening from 111.87 to 110.40 during the days trade. In contrast it was a quiet day for the euro,
falling 0.2% in directionless trade. Sterling
gained against the dollar on the back of news that the BoE is in no hurry to raise interest rates. GBP hit a five week high at 1.7980, however has retraced back to 1.7940 this morning.
No US data to report
French industrial production up 0.3% in June.
More evidence here of the emerging up-tick in activity that Euroland seems to be experiencing currently. This may be too late to significantly flatter Q2 GDP growth in Euroland, which we expect slowed from 0.5% to 0.3%, but Q3 should be stronger. The flash estimate of Q2 is due tonight (11/8).
The Bank of England's quarterly inflation report
made it quite clear that the Bank has no current intention to ease monetary policy further. On the assumption of a constant 4.5% repo rate, inflation is projected to be about on the 2% target in two years' time. But assuming the path for rates implied by the market in the lead-up to the report's preparation (i.e. a total of 2- 3 rate cuts), the BoE projections have inflation above 2% and rising further in 2007. In other words the Bank's current analysis suggests policy is about right, and certainly data since last week's meeting has been weighted towards the stronger side too. That said, the Bank did acknowledge that risks to its forecasts were skewed mildly to the downside. The bottom line is that the Bank has no preconceived plan or bias: it is data dependent. Westpac's view is that the data flow will be positive enough to prevent a further rate cut this year.
Country Release Last Forecast
NZ Q2 HLFS Employment flat 0.3%
Q2 HLFS Unemployment Rate 3.9% 3.5%
Aust Jul Employment/Unemployment 41.7k/5.0% 5.0k/5.0%
US Jul Retail Sales/Ex Auto 1.7%/0.7% 2.7%/0.9%
Jun Business Inventories 0.1% flat
Initial Jobless Claims w/e 6 Aug 312k 310k
Jpn Jun Current Account ¥bn 1441 1500
Eur Q1 GDP Flash 0.5% 0.3%
Ger Q1 GDP 1.0% flat
Latest Research papers/Publication
• NZ Q2 QES and LCI Review (8 August)
• NZ Weekly Forex Outlook (8 August)
• NZ Weekly Interest Rate Wrap-up (8 August)
• NZ Q2 labour market preview (3 August)
• NZ Weekly Interest Rate Wrap-up (2 August)
• NZ Weekly Forex Outlook (1 August)
• Of free lollies and collective cavities (29 July)
These papers/publications are available on Online Research on
Westpac Institutional Bank’s website (www.wib.westpac.co.nz)
(Previous day’s 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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