Thursday May 10, 2007 - 21:33:39 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Market News - Westpac Institutional Bank Morning ReportNew Zealand Dollar Stronger USD sees NZD fall overnight
After opening steady yesterday the NZD rallied when data released showed that employment rose 1.2% in Q1, markedly higher than the expected 0.5%. A strong rise in the participation rate also resulted in the unemployment rate actually rising from 3.7% to 3.8% for the same period. However, with prevailing sentiment slightly negative against the currency, it soon drifted back as traders realised it was unlikely to be enough to cause a further tightening by the RBNZ. The currency was notably lower against the AUD, which in turn benefited from favourable employment data, with the cross rate trading below 0.8800 for the first time in nearly a month. Broad based USD strength overnight against all currencies has seen the NZD under some pressure and the currency opens today around 0.7280.
Australian Dollar: AUD rallies on strong employment data
The AUD rallied over half a cent within minutes yesterday when data released showed strong employment growth and Australia‚Äôs unemployment rate falling to a 32-year low. Employment jumped 49,600 against expectations of a rise of around 12,500, with the total unemployment rate falling to 4.4%; the data is likely to further reinforce the current strong momentum in household spending and robust consumer sentiment. However most of the gains were eroded overnight on the back of the stronger USD, with the AUD opening around 0.8280 today.
Major Currencies: USD finds unlikely ally in Bush
The USD sidestepped poor economic data and gained across the board after encouraging comments from both the US Treasury Secretary and the President. First up though were central bank interest rate decisions from both the ECB and BoE. Expectations for both meetings were riding high as the BoE was predicted to raise rates by 25bps with a chance at going 50bps whilst analysts were forecasting the return of ‚Äėstrong vigilance‚Äô in the ECB‚Äôs statement. Both events played out according to plan but markets were pricing in a little more on both sides to the risk. This risk unwinding favoured the USD and as a result it posted a one month high against the euro and two month high against Sterling.
Further exacerbating dollar strength were comments from G.W. Bush and Treasury Secretary Paulson. Paulson insisted that ‚Äėa strong dollar is in our nation‚Äôs interest‚Äô on CNBC whilst the President said that his administration will try to lower trade barriers in an effort to attract foreign investment.
US trade deficit blows out $6bn to $63.9bn in Mar.
The trade deficit widened to nearly $2bn beyond Westpac‚Äôs top of the market $62n forecast. Oil prices were higher and import volumes fully corrected for their unexpected Feb slump. That explained $2bn of the $6bn deficit deterioration, but there was also strength in pharmaceutical, clothing, auto and other imports. Export growth did not fully recover the Feb loss; a 30% slump in civilian aircraft exports did not help. Given this news, net exports could shave a further 0.5 ppt or more off the revised Q1 GDP growth estimate, although tonight‚Äôs business inventories report just might show some of that import strength going into stocks, in which case the GDP revision might be a little less. But realistically, Q1 is now looking at sub 1% GDP growth. Strong import price data for April confirm that oil prices will be supportive of imports in the April trade report.
US initial jobless claims fell to 297k,
below 300k for only the second time this year, probably a further correction from the spike in claims last month that was caused by an Easter timing distortion. Next week‚Äôs figure will coincide with the May payrolls survey; claims around this level confirm that that weaker April payrolls growth was most likely a temporary weather effect.
The ECB left the repo rate unchanged at 3.75%
following today‚Äôs Council meeting but in the press statement and conference ECB chief stressed that ‚Äústrong vigilance‚ÄĚ was required of the ECB, which is code for ‚Äúexpect a June rate rise of 25bp‚ÄĚ ‚Äď which remains our forecast.
The BoE lifted its repo rate 25bp to 5.50%
following this week‚Äôs policy meeting. On the data front, house prices continued to grow strongly in Apr, but industrial production struggled through the first quarter and the trade deficit is again on a gradually widening trend.
Country Release Last Forecast
US Apr Producer Price Index 1.0% 0.8%
Apr PPI Core flat 0.3%
Apr Retail Sales 0.7% 0.5%
Apr Retail Sales ex auto 0.8% 0.5%
Mar Business Inventories 0.3% 0.2%
Can Apr Unemployment ch‚Äô 54.9k 30k
Latest Research papers/Publication
‚ÄĘ NZ Q1 HLFS Review (10 May)
‚ÄĘ House values: shifting foundations (8 May)
‚ÄĘ NZ Q1 LCI and QES Review (7 May)
‚ÄĘ NZ Weekly Forex Outlook (7 May)
‚ÄĘ NZ Q1 labour market preview (2 May)
These papers/publications are available on Online Research on Westpac
Institutional Bank‚Äôs 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. ¬© 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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