Monday July 17, 2006 - 21:01:47 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar NZ CPI the last straw
A much higher than expected CPI saw the NZD well supported over the 0.6200 level with it briefly posting a four week high of 0.6226. On the flip side the NZ bill market was slaughtered with 2 year swaps rising by almost 13bps and December bank bill futures selling off by 7bps. The NZD also benefited against its Australian counterpart with the cross testing 0.8270. Overnight the currency held its ground against the USD as other markets went risk averse and as a result forged ahead against the AUD to reach a new high of 0.8319.
Australian Dollar: AUD falls out of favour
The AUD opened on its highs but any chance of further gains were quickly snuffed out by plenty of selling interest â€“ firstly against a resurgent NZD and secondly from lower risk appetite amid growing tensions in the Middle East. By late afternoon the AUD was sitting just above 0.7500 with all the signs that it would drift lower. Overnight it tried to rally back toward the 0.7530 level but succumbed to further selling pressure and ended the session below 0.7500.
Major Currencies: All eyes on Middle East
The USD has continued to push higher as geopolitical tensions remain in the headlines. As fighting between Israel and Lebanon rages on the threat of it spilling over into neighbouring oil producing countries has caused the price of oil to hit record highs and investors have become dollar buyers. A strong US industrial output report has also added support to USD as June output rose 0.8%. European currencies were hit hard with the euro slumping to 1.2511, later recovering slightly to todayâ€™s open at 1.2526. Sterling
fell to 1.8177, a two week low, against the dollar despite strong housing data. The traditional safe haven currency, Swiss Franc,
ironically lost ground and opens today at 1.2473.
US industrial production up 0.8% in June.
Industrial production posted a solid June gain, making up for Mayâ€™s weak growth (revised up from â€“0.1%). All major industrial sectors posted gains, with the standouts being autos up 3.3% and mining up 1.2%. Both of those are probably not sustainable, but core manufacturing, excluding those sectors, still managed a 0.5% rise. This is a solid report, consistent with the steady â€“ though not spectacular â€“ readings from the national ISM manufacturing survey over most of the past year (and also the regional surveys â€“ more below). Note also the inexorable upswing in the rate of capacity utilisation, which reached 82.4% in June, a six year high.
The NY Fed manufacturing index falls from 29.0 to 15.6.
This early look at the local industrial sector in July revealed a sharp pullback in all activity measures (except jobs), reversing Juneâ€™s spike. This survey occasionally sees monthly noise: there was a similar spike and pull-back in February-March. But in the mid teens â€“ close to where the neighbouring Philly Fed survey is lying â€“ the NY Fed is still indicating a solid industrial sector performance. We do not expect to see a similar drop in the much steadier Philly survey (due Thursday).
Canadian auto sales fell 1.0% in May,
in line with earlier guidance from StatsCan, who also indicated that in June, sales â€śdeclined slightlyâ€ť.
Euroland CPI was unrevised at 2.5% yr in June
despite national data suggesting some chance of a slightly lower final read. The core rate edged a little higher, to be 0.2 pts above the 1.2% yr low recorded at the start of this year. Also, there was a solid 1.6% bounce in industrial production in May, consistent with national data already released.
UK house prices as measured by Rightmove
(an internet real estate firm) jumped 2.9% in July, for a 10.8% yr annual rate. The monthly gain was the biggest on record for this five year old survey. Rightmove noted that the supply of houses dipped as it typically does in the summer, but the number of househunters remained strong.
Country Release Last Forecast
US Jun Producer Prices/Core 0.2%/0.3% 0.1%/0.2%
May TIC Data USDbn 46.7 n/f
Jul NAHB Housing Market Index 42 40
Fedspeak: Governor Warsh
Jpn May Tertiary Activity Index 1.3% 0.4%
UK Jun House Prices net balance % 20 20
Jun CPI/Core %yr 2.2%/1.1% 2.1%/1.1%
Eur May Trade Balance s.a. EURbn â€“0.9 n/f
Ger Jul ZEW Economic Sentiment 37.8 40.0
Latest Research papers/Publication
â€˘ NZ Q2 CPI Review (17 July)
â€˘ NZ Weekly Forex Outlook (17 July)
â€˘ Drivers of visitor numbers to NZ (14 July)
â€˘ NZ Economic Overview July 2006 (11 July)
â€˘ NZ Q2 QSBO Review (11 July)
â€˘ NZ Q2 CPI Preview (11 July)
â€˘ NZ Interest Rate Strategy Weekly (11 July)
â€˘ NZ Weekly Forex Outlook (10 July)
â€˘ NZ Monetary Policy Update (5 July)
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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