Thursday December 14, 2006 - 21:29:54 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar Favourable retail sales data supports NZD
Better-than-expected retails sales data saw the NZD test recent highs around 0.6940 yesterday, with focus again being directed towards the possibility of an interest rate hike early next year. Seasonally adjusted retail sales rose 0.3% in Oct, slightly better than the expected 0.1% hike and compared to Sepâ€™s 1.1% rise. Opening near highs in the overnight session, the currency soon saw some selling pressure on the back of broad based USD strength, with rumours of RBNZ intervention also helping push the currency lower.
Australian Dollar: AUD suffers as investors switch into NZD
The AUD was confined to narrow range trading yesterday, with some small buying noted on the back of the stronger NZD. Data released showing consumerâ€™s inflationary expectations pulled back in Dec, with the median expected inflation rate falling to 3.4% from 4.00% previously; this was not enough to interest the AUD in moving in either direction. Investors switching from Australia into New Zealand saw the AUD under pressure late in the day, with the same theme spilling into the overnight session. USD strength added to AUD weakness as the currency opens today half a cent lower than last nightâ€™s close.
Major Currencies: USD firms as jobless claims data supports
The USD strengthened during overnight trade as the market reassessed the prospect of a near term cut in US interest rates. While recent data releases have shown weakness in the housing and manufacturing sectors, employment and consumer spending data has remained robust and this was exemplified by a larger than expected fall in weekly jobless claims, released yesterday. The euro fell from a 1.3254 high to print a 1.3145 low, while the USD pushed to a 117.89 high against the yen ahead of this morningâ€™s Tankan survey. Elsewhere, Sterling reversed from 1.9713 to a low of 1.9580, despite robust UK retail sales data. The Swiss National Bank raised its mid-rate target for 3mth money from 1.75% to 2.0%.
US import prices up slightly.
November import prices rose 0.2%, essentially stabilising after the impact of lower oil prices washed out. A surge in natural gas prices pushed overall import prices up: ex-fuel prices were up 0.1%: little sign yet of the USD weakness that set in over that month.
US initial jobless claims drop.
Initial claims for the week ending 10/12 fell 20k to 304k. It is possible that there is a lingering holiday distortion in the seasonal adjustment process, so we won't read too much into the drop at this point. Continuing claims were also down for the week, but still well above their pre-holiday level.
ECB monthly report.
The ECB said interest rates remained accommodative, and that the risks to inflation remain to the upside. It expects inflation to average 2.2% this year - above the target ceiling â€“ before sitting at 2% next year. It also revised up its growth forecasts. The ECB was also concerned that wage increases could be stronger than anticipated. The report suggests there is still a strong likelihood of a further interest rate increase.
Eurozone labour data.
Q3 labour costs were milder than expected at 2% y/y, with the deceleration putting labour cost growth at its lowest level since 1998. That may temper some of the ECB's recent wage inflation concerns. Employment in Q3 grew 0.4% q/q and 1.4% y/y.
UK retail sales hold onto gains.
November sales rose 0.3%, a touch ahead of the flat result the market expected and building on October's solid 1% increase. This gives further ammunition for the rate hike camp.
Canadian manufacturing shipments.
Shipments over October were essentially flat at -0.1%, slightly better than expected and arresting recent declines.
Country Release Last Forecast
NZ Nov REINZ House Prices %yr (15-20th) 9.8% n/f
Q3 Manufacturing Real Sales 2.4% n/f
US Nov CPI/Core -0.5%/0.1% 0.2%/0.2%
Dec NY Fed Empire State Index 26.7 23.0
Oct Total Net TIC Flows USDbn 53.7 n/f
Nov Industrial Production 0.2% -0.2%
Jpn Q4 Tankan Lrg Mfg/Non-mfg 24/20 25/21
Oct Tertiary Activity Index -1.3% 1.3%
Eur Nov CPI (F) %yr 1.8%a 1.8%
Oct Industrial Production -1.0% 1.0%
Latest Research papers/Publication
â€˘ NZ HYEFU/BPS Preview (13 December)
â€˘ NZ Q3 Current Account Preview (13 December)
â€˘ NZ Q3 Terms of Trade (11 December)
â€˘ NZ Weekly Forex Outlook (11 December)
â€˘ RBNZ Dec MPS Review (7 December)
â€˘ NZ labour market: purging the excesses? (6 December)
â€˘ NZ Weekly Forex Outlook (4 December)
â€˘ RBNZ Dec MPS Preview (30 November)
â€˘ NZ Weekly Forex Outlook (27 November)
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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