Thursday October 20, 2005 - 01:00:47 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar: NZD/USD seen within familiar range
Despite continued broad based USD strength, the Kiwi Dollar again traded within familiar confines during the local session yesterday. Overnight, the market traded both sides of the 0.6940-0.6972 local session range, with hawkish comments from the Fed's Kohn & Pianalto and strong US housing starts underpinning the US currency. From an overnight low of 0.6931, the Kiwi recovered however, as the greenback shied away from 116 & 1.1875 against the Yen & Euro. However, 0.6995 once again capped the upside and the currency is seen opening this morning at 0.6980.
Australian Dollar: AUD recovers from 3 month lows
A narrow range of 0.7455 - 0.7478 was also seen for the AUD during domestic trade, yesterday. Locally, there was little reaction to the Westpac MI Leading Index falling below its long-term trend, with the market instead focusing on the strength & trajectory of Hurricane Wilma. Despite, being sold to three-month lows of 0.7439 during offshore trade, the AUD recovered as the US currency stalled. Gains back above 0.7500 have proved difficult to sustain, however and the currency opens this morning at 0.7495.
Major Currencies: Federal Reserve mantra stops US dollar rally
Z Wednesday provided little economic data to drive currency markets but the raft of Fedspeak from various Fed Presidents held the markets focus. With the US dollar trading a two-year high against the yen and three-month high against the euro, the markets have been looking for continued strength. Yesterday looked like the dollar would continue its recent bull run as it broke through crucial support level at 1.1900 against the euro and threatened 116.00 against the yen. However Fed vernacular placed some doubt on how aggressive they will be with interest rate hikes, the market responded by reversing some of their long USD positions and drove the dollar lower late in the day. The euro weakened from 1.1950 to 1.1875 prior to the Fedspeak but reversed sharply and closed the day at 1.1970. The dollar strengthened against the yen from 115.60 to 115.98 before the turnaround and closed the day lower at 115.35. Sterling found support around 1.7450 and after briefly touching 1.7428 rallied up to 1.7640.
US housing starts jump 3.4% in Sept.
The housing data were even stronger than Westpac's above consensus forecast. The annualised pace of starts, 2108k, was the third strongest this year (behind Jan and Feb), while permits (2189k) hit a new 30+ year high. The regional breakdown showed starts in the south were the strongest, jumping 6.9%, which suggests there was no negative impact from the hurricanes. It is even conceivable that there might be the early stages of a reconstruction boost to the data coming through, although permits in the south were down 3.0%. More likely, the data simply reflect ongoing underlying strength in the housing market, although the recent upswing in bond yields and hence mortgage rates might have a negative impact if sustained.
Euroland industrial production
posted a sold 0.8% gain in Aug, with weakness in German output offset by strength in France, Italy and Spain. The string of three rises in June-Aug is the longest positive output run since late 2003, and confirms that the European industrial sector is indeed on a more solid footing, thanks mostly to exports.
The minutes to the Bank of England monetary policy committee
meeting on October 5-6 revealed a unanimous 9:0 vote to keep rates on hold. Some members felt that downside risks to demand had increased, but others were more worried about the possibility of second-round price impact from higher energy costs. Significantly, as in Sept, there was discussion of the possible need for tighter monetary policy if inflation expectations rose, but there was no discussion of a possible rate cut. That suggests that the risk of a rate cut in Nov, when the next growth and inflation forecasting round will be completed, is not high, unless the economic data are especially weak in the meantime.
Country Release Last Forecast
Aus Sep RBA Monthly Bulletin - -
US Initial Jobless Claims w/e 15/10 389k 340k
Sep Leading Indicators -0.2% -0.6%
Oct Philadelphia Fed Index 2.2 20.0
Fedspeak: Poole, Guynn, Lacker - -
Eur Aug Trade Balance EURbn 7.2 1.0
UK Sep Retail Sales flat 0.2%
Sep M4 Money Supply %yr 10.0%-
Can BoC Monetary Policy Report - -
Latest Research papers/Publication
RBNZ October OCR Preview (19 October)
NZ Economic Overview October 2005 (18 October)
NZ Q3 CPI Review (17 October)
NZ Weekly Forex Outlook (17 October)
NZ Weekly Interest Rate Wrap-up (17 October)
OCR hike implicitly endorsed (14 October)
NZ Q3 CPI Preview (12 October)
NZ Q3 QSBO Review and OCR Outlook (11 October)
These papers/publications are available on Online Research on
Westpac Institutional Banks website (www.wib.westpac.co.nz)
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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