Thursday January 18, 2007 - 20:32:37 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar NZD rangebound
NZD consolidated above 0.6900 yesterday after dipping in the previous session on weak CPI data. The currency traded in a narrow range of 0.6921-0.6949 throughout the day as attention was focused on the BoJ rate decision. NZD remained well bid after the BoJ announcement that rates would remain on hold at 0.25%, but was pretty much sidelined overnight as a barrage of positive US data saw the market taking direction from USD.
Australian Dollar: AUD remains well supported
AUD traded off the lows yesterday to an intraday high of 0.7884 as commodity prices, particularly gold, staged a recovery. The decision to leave rates unchanged in Japan spurred buying of AUD/JPY by Japanese investors which has sent it through the critical 95.00 level, and brought the AUD/NZD cross up with it to see a high of 1.1354. AUD/USD remains well supported on the back of investor demand and is pushing up near 0.7900 this morning. A run of strong data has heightened expectations of a rate rise near term resulting in positive AUD sentiment.
Major Currencies: USD buoyed by more favourable data
Continued favourable US data supported the USD overnight after the currency saw some initial strength in our time zone when the Bank of Japan kept their interest rates unchanged at 0.25%. The momentum carried through in the US markets when Dec core CPI was released at 0.2%, while home construction showed a 4.5% rise for the same period, further supporting the case for a â€˜no changeâ€™ from the Federal Reserve any time soon. Some minor selling was noted on a rumour of a naval engagement between US and Iranian forces, but this was soon denied and the buying recommenced.
US CPI up 0.5% in Dec.
The CPI showed the expected bounce in gasoline prices, up 8.0% and explaining more than 0.3 ppts of the 0.5% headline. Food prices were flat, despite concerns that poor growing conditions on the West Coast might be imparting upward pressure. The core rate returned to 0.2% after two very soft months.
US housing starts jump 4.5% in Dec.
The housing data were very strong, providing further evidence that activity in the sector might be finding a floor after near collapse though most of 2006. Starts posted a second consecutive rise, although Octâ€™s steep plunge has not yet been fully reversed. More surprising was the 5.5% jump in permits, their first rise for 11 months.
US Jan Philadelphia Fed factory index posted a solid gain,
bouncing 10 pts to 8.3 from a revised -2.3, bringing it almost back into line with the neighbouring NY Fed index. The Philly detail was mixed, with orders still sluggish but shipments surging. This report adds to the weight of evidence pointing to a less weak US industrial sector performance at the turn of the year â€“ though it remains to be seen whether this is simply a weather-related phenomenon, or something more sustainable.
US initial jobless claims fell 8k to 290k,
holding comfortably below 300k for the second week running (the monthly payrolls survey week), suggesting the federal holiday (for President Fordâ€™s funeral) was not a distorting factor.
Fed chairman Ben Bernanke
didnâ€™t discuss current economic and policy issues in his Senate testimony today. He concentrated on budget issues. His February 14 testimony will definitely discuss the economy: thatâ€™s the testimony formerly known as Humphrey-Hawkins.
The Bank of Canada Monetary Policy Report Update
fleshed out the thinking behind this weekâ€™s interest rate decision. The short term growth picture (i.e. Q4 06) was revised a little lower, but the 2007 outlook was revised a little higher - in both cases the US economy was a factor behind the revisions. Core inflation, currently above the 2% target midpoint, is forecast to fall back to 2% this year. Risks around this view were diminished but still balanced.
Country Release Last Forecast
NZ Nov Retail Sales 0.3% â€“0.2%
Aust Q3 Export/Import Price Index 1.9%/â€“0.3% 0.5%/â€“2.5%
US Jan Michigan Consumer Sentiment (P) 91.7 93.0
Fedspeak: Lacker and Hoenig
UK Dec Retail Sales 0.3% 0.7%
Dec PSNCR Â£bn 7.1 15.1
Dec M4 Money Supply %yr 13.0% 12.6%
Can Nov Wholesale Sales â€“0.2% 0.4%
Latest Research papers/Publication
est Research Papers/Publications
â€¢ NZ inflation expectations (18 January)
â€¢ RBNZ OCR Preview (17 January)
â€¢ NZ Q4 CPI Review (17 January)
â€¢ NZ Q4 QSBO Review (16 January)
â€¢ NZ Weekly Forex Outlook (15 January)
â€¢ NZ Q4 CPI Preview (11 January)
â€¢ NZ Q4 Employment Confidence Index (10 January)
â€¢ NZ Q3 GDP Review (21 December)
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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