Wednesday January 24, 2007 - 19:51:00 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex: Westpac Institutional Bank Morning ReportNew Zealand Dollar NZD dragged down by weaker AUD
The NZD opened on its highs and remained reasonably well supported above 0.7000 throughout the morning. In the afternoon NZD drifted lower in sympathy with a weaker AUD following a lower than expected Australian CPI number. This bearish sentiment continued into the European time zone as NZD broke through the 0.6980 support level enroute to a low of 0.6950. Buying interest at this level help the currency pair climb back up towards the 0.7000 but the rally was short lived with market participants reluctant to build long positions ahead of the OCR due out this morning at 9am.As a result the NZD gravitated back toward 0.6950 where it opens this morning.
Australian Dollar: Soft CPI hits AUD hard
The main story today was the much anticipated Australian CPI data. The softer than expected outcome, in terms of both the headline and the underlying rate, saw the AUD trade down heavily both against the USD and on the crosses. It was a step process with the market initially reacting to a softer headline and then news of a softer core rate started to come through. All up the AUD has lost close to one big figure from its opening highs around 0.7930. Overnight the AUD extended its losses clearing 0.7800 to post a near two week low of 0.7791.
Major Currencies: JPY rises on G7 talk
JPY gained against the USD yesterday on speculation that Europe will push for a more forceful message at next months G7 meeting that the JPY is too weak. USD/JPY fell to a low of 120.65, just above large stop loss orders. The euro came under pressure overnight falling back under 1.3000. Elsewhere minutes of the Bank of England latest meeting showed a 5-4 vote for this months UK rate rise to 5.25% compared with market expectations of a 7-2 vote. Governor King was quoted as saying that he expects inflation to fall in the second half of 2007. GBP fell from its highs around 1.9800 on the back of these events to eventually settle around 1.9640.
No major US data to report.
Mortgage applications fell 8.4% in the week ended Jan 19 but the data are always volatile and the annual growth rate remained in positive territory at 3.8% yr.
UK GDP growth accelerated to 0.8% in Q4 last year
â€“ its fastest pace since H2 2004. The limited breakdown available showed another solid 1.4% growth pace for business services and finance, but at the other end of the scale, a 0.2% decline in production sector output - that sectorâ€™s only quarterly decline for the year. Whilst it may not be well-balanced, growth is now running clearly above trend on both a quarterly and annual basis (trend is assumed to be around 2.5% annual growth). Given that inflation in December was fully 1% above the Bank of Englandâ€™s 2.0% target, the recent bout of monetary policy tightening (75bps in five months) looks justifiable.
The minutes to the January BoE monetary policy committee meeting,
when rates were surprisingly lifted by 25bp to 5.25%, showed that it was a close call, with a 5:4 split. The minutes showed that the Committee agreed that the balance of risks to the inflation outlook had shifted upwards, however the four dissenters argued that there had been insufficient news to warrant an immediate increase. That it was such a close vote - and with three bank officials arguing against it â€“ has significantly dampened expectations of a further imminent rate rise, though risks are still skewed in that direction, especially if the current wage negotiation round between unions and bosses delivers overly generous agreements.
Date Country Release Last Forecast
25 Jan US Initial Jobless Claims w/e 20/1 290k 305k
Dec Help Wanted Index 30 31
Dec Existing Home Sales 0.6% flat
Jpn Dec Trade Balance Â¥bn 991 1001
Eur Nov Current Account â‚¬bn s.a. flat 1.0
Ger Jan Ifo Bus Climate Index 108.7 109.5
Feb GfK Consumer Confidence 8.7 8.4
26 Jan Aust Australia Day holiday
US Dec Durable Goods Orders 1.6% 6.0%
Latest Research papers/Publication
â€¢ NZ Weekly Forex Outlook (23 January)
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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