Wednesday August 16, 2006 - 21:46:28 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar Kiwi soars
The NZD rallied to a 14-week high yesterday, capitalising on ongoing inflation pressures at home and weaker-than-expected inflation data in the US. NZD/USD was already trading near ten-week highs at 0.6360 during local trading, boosted by comments from Fin Min Michael Cullen. Cullen noted that NZ was facing uncomfortably high inflation pressures due to record low unemployment and the fuel price surge. The currency cashed in on the overnight release of US July inflation data that disappointed the market and takes some pressure off the Fed to continue hiking rates. The currency traded near 0.6440 before retreating to 0.6420 this morning. The NZD reached a four-month high against the yen and one-month highs against the AUD, euro and GBP.
Australian Dollar: AUD boosted by weak USD
The AUD traded a tight range during local time yesterday with the majority of price action between 0.7640 and 0.7655. Australia has had a light data week and has been looking for direction offshore. The markets needed to look no further than the US CPI data. The AUD broke out of the range-trade during offshore trading and rallied up to 0.7700 supported by significant corporate demand during London time and by the lower-than-expected US inflation number. AUD/USD trades at 0.7685 as we go to print.
Major Currencies: US CPI reinforces Fed decision
The USD is down across the board again today as the US July CPI report showed prices rose 0.2% slightly weaker than the market median forecast of 0.3%. The weaker CPI and housing numbers back up the Federal Reserveâ€™s decision to hold the Fed rate at 5.25% for now. The euro has jumped for the second consecutive day reaching a high of 1.2865, today it opens around 1.2836. The yen had drifted higher yesterday to 116.38 before strengthening to 115.63 following the US CPI report. The GBP hit an overnight session high of 1.9025 before the release of the BoE minutes which suggested they were not planning a series of interest rate increases. Today the sterling opens at 1.8950.
BoJ minutes in line with statements made since July tightening.
Minutes of the BoJ's 13-14 July policy board meeting confirm that policy board member Mizuno proposed a 0.5% official discount rate, with 3 members dissenting from the majority vote in favour of a 0.4% rate. The minutes indicated that if developments follow BoJ expectations then the policy rate would be gradually lifted over time â€“ in line with other official comments.
US July core CPI 0.2%.
The headline rose 0.4%. The 0.2% core followed 4 0.3%'s and was slightly weaker than expectations (final consensus was 0.2% median but a mean of 0.25%. Of the components, relief from apparel prices (-1.2%) and small increases in medical care (up only 0.2%) and vehicles (0.2%) offset continued pressures from rental costs (both rent and owners' equivalent rent rose 0.4%).
US July housing data weak.
Housing starts fell 2.5% in July atop a slight downward revision to the June level of starts. Permits were down 6.5% on the month and more than 20% on a yoy basis. These figures are consistent with other signals from the housing market â€“ including yesterday's huge drop in the homebuilders' index â€“ that suggest a large decline in residential investment in the third quarter.
US July IP also weak.
Production rose 0.4% and capacity utilization held steady at 82.4%. Manufacturing rose only 0.1% as auto production fell, but utilities output rose 2% on the hot weather.
BoE minutes show 6-1 hike vote.
The dissenter was David Blanchflower who has been on the Committee for just a few months. His main reason was that he thought there might be more spare capacity in the economy than the Inflation Report's central projection assumed. What's more, the rest of the minutes had a dovish tone. Most members thought that there would be time to reverse any increase should it prove necessary, while they also thought that an early rise in rates would reduce the risk that a sharper rise would be needed later.
Country Release Last Forecast
Aust RBA Monthly Bulletin
Aug MI Inflationary Expectations 4.1% n/f
Q2 Full-Time AWOTE %qtr 0.9% n/f
US Initial Jobless Claims w/e 12/8 319k 315k
Jul Leading Index 0.1% 0.1%
Aug Philadelphia Fed Index 6.0 12.0
Eur Jul CPI (F) %yr 2.5%a 2.5%
Jun Industrial Production 1.6% flat
UK Jul Retail Sales 0.9% n/f
Latest Research papers/Publication
â€¢ 50 year mortgages: of pros and cons (14 August)
â€¢ NZ Q2 Retail Sales Review (14 August)
â€¢ NZ Weekly Forex Outlook (14 August)
â€¢ NZ Interest Rate Strategy Weekly (14 August)
â€¢ NZ Q2 HLFS Review (10 August)
â€¢ NZ Q2 LCI and QES Review (7 August)
â€¢ NZ Weekly Forex Outlook (7 August)
â€¢ NZ Q2 labour market preview (3 August)
â€¢ Causes & consequences of weaker profits (2 August)
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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