Sunday August 5, 2007 - 22:07:56 GMT
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Forex Research - Westpac Institutional Bank - Morning Reoprt
Westpac Institutional Bank
Monday 6 August 2007
New Zealand dollar
NZD softens as credit market woes lower risk appetite. The NZD opened a shade above 0.7700 on Friday and was immediately placed under pressure in subdued trading prior to the US non-farm payrolls data. A quiet data day meant the currency followed offshore direction and sold off to 0.7660 during local trade. Increased risk aversion stemming from further credit market concerns offshore meant the NZD was out of favour late in the day. The NZD weakened to a low of 0.7600 and NZD/AUD traded down to a two-month low at 0.8890.
Risk aversion continues ahead of RBA decision. The AUD experienced a rather subdued end to the week on Friday as local stock markets found some much needed stability. Trading a range between 0.8564 and 0.8585 on Friday, the AUD managed to briefly hit 0.8600 overnight before renewed sub-prime fears prompted risk aversion from market participants and saw the AUD sold down to its intraday low of 0.8536. With sub-prime fears still driving the market, investors will also look for direction from Wednesdayâ€™s RBA announcement where it is widely expected interest rates will be raised to 6.50%.
USD smashed on data and continued credit concerns. Although the USD traded narrowly on Friday it was a different story overnight as the currency fell sharply on the release of poor non-farm payrolls data. Figures released showed only 92k jobs had been created in July against expectations of an increase of 130k. Consequently the 4.6% unemployment rate was the highest this year. Adding to the negative sentiment was the release of weaker-than-expected growth data, with the ISMâ€™s non-manufacturing index falling to 55.8 in July compared with 60.7 in June and an expected reading of 59.0. The selling was completed late in the session, matched by a sharp fall in the Dow, after a report by Bear Stearns suggested the fixed income markets were the worst in more than two decades and that the credit market turmoil and risk aversion may be a
Economic data and events
US payrolls rise 92k in July, on the soft side of expectations, and revisions to the last two months of Q2 shaved a further 8k off jobs growth. However the headlines mask an improved private payrolls picture. In May and June, government jobs were revised down by 41k but private sector jobs were revised up 33k; in July, private payrolls rose by 120k, faster than Juneâ€™s 107k gain.
Mixed detail in the US payrolls report. A 30k fall in household survey jobs pushed the unemployment rate up to 4.6%, matching Januaryâ€™s rate, and before rounding Julyâ€™s rate was actually the highest since August last year. There was a modest 0.1% fall in private sector hours worked in July, though that followed two monthly gains and left the three month annualised growth rate for hours up 2.5%, its strongest pace yet this year. So again - not really evidence of a struggling economy. Positive detail in the report included an upward revision to Juneâ€™s hourly earnings growth rate (0.4%) and a further 0.3% gain in July, so household income growth remains supportive of consumer spending.
US non-manufacturing ISM falls to 55.8 in July, just below where it was in April, but it remained well above its 52.4 cyclical low recorded in February this year. This is consistent with the economy slowing from Q2â€™s 3.4% annualized pace in Q3, although GDP growth should better Q1â€™s anaemic 0.6%! One area of potential concern is that the non-manufacturing ISM new orders index dipped to its lowest since the Iraq War in 2003, though we wonâ€™t get too worried unless we see this component sustain weak readings over several months.
Canadian Ivey PMI falls 13 pts to 54.6 in July, mostly seasonal (relating to summer shutdowns) although there may be an element of concern about the strong C$ in there as well. Building permits fell 0.4% in June but held onto almost all of Mayâ€™s 23% jump which means that Q2 building permits were the strongest ever.
In other news: Euroland retail sales rose 0.4% in June, their first rise in three months; the UK services PMI slowed to 57.0, its lowest for the year so far; personal insolvencies and home foreclosures are on the rise in the UK.
Date Country Release Last Forecast
6 Aug NZ Q2 Labour Cost Index 0.7% 0.6%
Q2 QES Priv Sector Earnings 0.7% 0.5%
Aust Bank Holiday, NSW & ACT only
Jul ANZ Job Ads â€“ 0.8% n/f
Jpn Jun Leading Index 40.9% 80%
Ger Jun Factory Orders 3.2% 1.0%
UK Jun Industrial Production 0.6% 0.4%
NZ Jul ANZ Comm Prices NZD 2.5% n/f
US FOMC Rate Decision 5.25% 5.25%
Latest Research Papers/Publications
â€¢ NZ Q2 labour market preview (1 August)
â€¢ NZ Weekly Forex Outlook (30 July)
â€¢ NZ RBNZ July OCR Review (26 July)
â€¢ NZ Interest Rate Focus (25 July)
â€¢ NZ Weekly Forex Outlook (23 July)
â€¢ You can't always get what you want (20 July)
â€¢ NZ Economic Overview July 2007 (17 July)
â€¢ NZ RBNZ July OCR Preview (17 July)
These papers/publications are available on Online Research on
Westpac Institutional Bankâ€™s website (www.wib.westpac.co.nz)
<i>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.</i>
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