Thursday June 22, 2006 - 21:16:35 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar NZD slumps as deficit hits 9.3% of GDP
The release of a record annual current account deficit of $14.5bn saw the NZD immediately marked sharply lower yesterday. The deficit equates to 9.3% of GDP against expectations of 9.0% and leaves NZ positioned 3rd within the OECD. The currency fell further following comments from ratings agency S&P that the deficit posed a risk to the countryâ€™s sovereign rating, setting an intra-day low at 0.6144. Overnight a move out of emerging market and high-yielding assets in favour of the greenback saw the USD strengthen to two month highs. A further sell off in the NZD resulted with the currency plunging to a 10-week low of 0.6076. It opens at 0.6090 this morning, with key Q1 GDP data released at 10.45 am.
Australian Dollar: AUD slips to 2-month low
The NZD/AUD cross attracted most attention during the local session yesterday, with the market sliding through 0.8330 following the NZD current account data. During offshore trade however, the AUD once again came under pressure as the USD strengthened across the board. With speculation circulating that the Fed could raise US rates by 50bps at next weekâ€™s meeting and doubts as to BoJ Governor Fukuiâ€™s future, the USD gained on the AUD. From a 0.7423 high yesterday, the AUD slipped to a two month low of 0.7322, before recovering to 0.7340 from where we open this morning.
Major Currencies: Risk aversion gives USD a boost
The dollar jumped to a fresh two-month high against the yen and rallied against European currencies on Thursday, as investors dumped emerging and high yielding currencies for the greenback. Traders flocked to the safety of the dollar as the spotlight fell on North Korea again â€“ in particular the possible launch of a missile but also rumours that a US spy plane had been shot down. This sent USD/JPY over 115.00 and pushed EUR/USD below 1.2650 in a flurry of panicked dollar buying. On a sad note David Walton the most hawkish member of the BoEâ€™s Monetary Policy Committee passed away at the age of 43. The news weighed on GBP as it shed about 200 points to hit a session
low of 1.8263.
US leading index down 0.6% in May.
The leading index decline was exactly as forecast by Westpac. Seven of the ten components fell, led by initial claims (distorted by the now resolved Puerto Rico public sector shutdown), consumer confidence, money supply, building permits and equities. That data weakness in May was also captured by the Chicago Fed NAI, which is an index based on 85 different economic series. It fell to â€“16. Anegative reading implies below trend growth. Although June is shaping up as a stronger month for the economy, the message is fairly clear that Q2 will report much weaker economic growth than Q1.
US initial jobless claims rose 11k to 308k in payrolls week.
Even so, that level compares favourably with 325k in the May payrolls survey week (adjusted for a 42k boost to the number from Puerto Rico, not included in the payrolls survey). That suggests that June payrolls should be stronger than Mayâ€™s subdued 75k. However continuing claims have now established a modest but clear up-trend, rising about 58k since their low point in late April. The implication is that unemployment might be rising a little.
Euroland industrial orders down 0.2% in April.
The further fall needs to be viewed in the context of a 0.8 ppt upward revision to Marchâ€™s decline, although the result was still weaker than expected.
The Confederation of British Industry survey
showed the highest output reading since January, and because there was some slippage in export orders but total orders were steady, the implication is that domestic orders rose. Prices charged recovered somewhat too. So all up, a reasonably solid manufacturing report, confirming recent official data pointing to an end to the UKâ€™s industrial recession.
BoEâ€™s David Walton dies.
Mr Walton, who joined the BoEâ€™s monetary policy committee a year ago, died unexpectedly and suddenly yesterday. He was only 43 years old. Recall that he was again the sole voter for an immediate rate rise at the June BoE MPC meeting. Markets have downgraded the near term prospect of a rate rise as a result.
Country Release Last Forecast
23 Jun NZ Q1 GDP %qtr -0.1% 0.6%
Aust Q1 Ent Bargain: New %ann 4.5% n/f
US May Durable Goods Orders -4.4% 1.5%
26 Jun US May New Home Sales 1198k 1150k
Jpn May Corp Service Price %yr -0.3% -0.1%
Latest Research papers/Publication
â€¢ NZ Q1 Current Account Review (22 June)
â€¢ NZ Q1 GDP Preview (19 June)
â€¢ NZ Weekly Forex Outlook (19 June)
â€¢ NZ Interest Rate Strategy Weekly (19 June)
â€¢ NZ Q1 Current Account Preview (16 June)
â€¢ NZ Interest Rate Strategy Weekly (13 June)
These papers/publications are available on Online Research on
Westpac Institutional Bankâ€™s 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. Â© 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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