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NZD/USD may extend gains to .6630 - .6640, but risks sliding back to .6540/30 thereafter; AUD/USD follows suit with further uptick to .7020 - .7030, then declines to .6940/30
New Zealand retail sales rose for a third month July, buoyed by higher household incomes and consumer spending that may prompt the central bank to raise interest rates to a four-year high next month.
DEVELOPMENTS TO WATCH TODAY: Sept 14 - Europe
- German investor confidence probably declined to the lowest in more than a year in September as higher oil prices and rising unemployment weigh on a recovery in Europe's largest economy, a survey of economists showed. The ZEW Center for European Economic Research's index of institutional and analyst sentiment may have fallen to 45 from August's 45.3, the median of forecasts. ZEW will release the report at 11 a.m. in Mannheim. Germany's economy is lagging that of the U.S. as companies threaten to cut jobs, hurting consumer confidence which last month fell to the lowest since June 2003. As a 37 percent surge in oil prices this year jeopardizes foreign demand, a German recovery may struggle to gather pace. Exports drove German growth in the past year. In the U.S., economists have cut half a percentage point from their third- quarter growth forecast over the past two months and now expect the world's largest economy to expand at a 3.7 percent annualized rate in the period.
- Sales at U.S. retailers may have fallen in August as receipts at car dealers slumped, a survey of economists showed ahead of a government report today. A 0.1 percent decline was likely last month after July's 0.7 percent advance, according to the median of forecasts. Excluding autos, sales probably rose 0.2 percent, the same as in July, for the smallest gains since spending declined in February. The Commerce Department issues the report at 8:30 a.m. in Washington. Surging gasoline prices and a slowdown in payroll gains in June and July limited the ability and willingness of consumers to spend. Sales may recover this month, according to economists, and H. Lee Scott, chief executive of Wal-Mart Stores Inc., said last week he's ``optimistic'' about the Christmas shopping season.
- New Zealand retail sales rose for a third month in July, buoyed by higher household incomes and consumer spending that may prompt the central bank to raise interest rates to a four-year high next month. Retail sales rose 1.2 percent from June, Statistics New Zealand said in Wellington, citing seasonally adjusted figures. Economists forecast sales would be unchanged. From a year earlier, sales gained 8.1 percent. House prices jumped almost a fifth in July from a year earlier and the second-quarter jobless rate was a 17-year-low 4 percent, boosting the wealth of households and encouraging consumers to borrow and spend. Reserve Bank Governor Alan Bollard last week increased interest rates for a fifth time this year to slow the economy and said another increase is likely.
- Canadian companies intend to add workers at a faster pace in the fourth quarter, including factories that have had to cope with a surge in the country's dollar, according to a survey by Manpower Inc. The poll's net employment outlook, which subtracts the percentage of companies that plan to fire workers from the share that expect to add staff, rose 3 percentage points to 17 percent in the fourth quarter. All 10 industries surveyed said they intend to hire. Canadian manufacturers had to cut costs this year to match foreign competition after a record 21 percent rise in the dollar in 2003, and unions and economists predicted job cuts would be needed to do it. Factories employ 2.3 million Canadians, or about one in seven workers, and hired 3,400 people between January and August, suggesting they are economizing elsewhere.
- Crude oil was little changed after rising 2.5 percent yesterday as Hurricane Ivan disrupted supply to ports on the Gulf of Mexico, where more than half of U.S. oil imports arrive and 50 percent of the nation's fuel is refined. Royal Dutch/Shell Group was evacuating oil rigs yesterday and the Louisiana Offshore Oil Port, the nation's biggest import terminal, stopped offloading tankers. Ivan is forecast to hit the U.S. near the Alabama-Florida border early tomorrow, about 170 miles (274 kilometers) from the port. Crude oil for October delivery rose 4 cents to $43.91 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 12:54 p.m. Singapore time. Yesterday, the contract rose $1.06 to $43.87 a barrel. Prices are 56 percent higher than a year ago. Natural gas for October delivery rose 28 cents, or 6.2 percent, to close at $4.85 per million British thermal units in New York. It traded at $4.90 per million British thermal units in after-hours trading.
FX Market Summary -
The dollar traded near a three-week low against the euro in Europe on forecasts a government report will show the U.S. current account deficit rose to a record in the second-quarter. The gap in the current account, the broadest measure of trade and investment, rose to $158.3 billion, eclipsing the $144.9 billion in the first quarter, economists said. A wider deficit increases the amount of overseas funds the U.S. needs to attract to preserve the dollar's value. Against the euro, the dollar traded at $1.2266 at 6:45 a.m. in London from $1.2260 late yesterday in New York. Federal Reserve Bank of San Francisco President Janet Yellen on Thursday said the current account gap is ``enormous'' and will keep widening with the dollar near current levels. The dollar last week had its worst week in five against the euro.
The yen, at 109.86 per dollar from 110.02 was supported as the Nikkei 225 Stock Average rose for a second day, by as much as 0.9 percent, extending yesterday's 1.5 percent climb, the biggest in a week.
Monday's summary: The dollar had a strong day in currency trading Monday. The greenback gained 0.5% vs. the Japanese yen and 0.7% against the Canadian dollar. The dollar traded flat, though, against the euro. Sterling remains under pressure across the board, losing 0.1% to 1.795 vis-୶is the dollar and 0.1% against the euro, slipping to just under 0.682.
- EUR/USD - the single currency bounced back, in lock-step with the U.S. treasury markets. It may retest the 1.2306 top, but may still be susceptible to a pullback to 1.2200 area thereafter. The rest of the short-term view kicks in thereafter -- if 1.2200 level is taken out, then watch the single currency gravitate lower towards the mid-1.2100s. In the near-term, we turn more bullish once the single currency goes above 1.2310 -- which has indeed shaped up to be a firm trendline technical resistance. We reiterate further, that there is no real reason for bulls to celebrate until 1.2530 hypothetical resistance is taken out. This level is shaping up to be the major resistance in the current investment cycle. Take out 1,2530 top in turn, and you get a run-up to the 1.2925 high we saw earlier in the year.
- GBP/USD - the currency pair is firmer, as the market reassess the odds of further BoE rate hikes down the road -- a consequence of mounting inflation pressures -- which could provoke a further 25 basis point hike this year. The currency may rise back to 1.8040/50, but watch still for a decline to 1.7920 area thereafter. The next upmove should focus next at 1.8100 - 1.8150 resistance area. The uptrend remains suspect until it takes out 1.8100 - 1.1850 resistance band.
- USD/JPY - the currency pair fell further than expected, but should find support at circa 109.60. It may yet rise back to 110.50/60 area thereafter. No change in the view from there -- the pair should resume the downtrend after completing the multi-week consolidation phase. The next targeted downside level may be 108.75 base, but any breach of support should bring about 107.00 quickly.
- USD/CHF - the currency may drift lower further towards 1.2550, but should rally back towards 1.2650 - 1.2670 thereafter. But it should reinstate the downtrend thereafter, and may be bound for 1.2380 next. The downtrend reassert soon -- expect further declines to 1.2200 further out.
- USD/CAD -- the currency pair has been to the 1.3020 target and may pullback further towards 1.2980/70 -- it may rally further towards 1.3050/60. Nonetheless, this rally from the 1,2850 low is countertrend -- the downtrend should resume thereafter, and may lead to the 1.2680 base further out.
- AUD/USD - the currency should see further upmove to .7020/30, bringing on overbought conditions. The currency should fall back thereafter, probably to just .6940, and not to the .6900 - .6885 support area. A rally toward .7080 - .7100 is still expected to resume thereafter.
- NZD/USD - the currency pair is getting a boost from fundamental data as NZ retail sales soar for the 3rd month in a row -- which may provoke the RBNZ to ratchet interest rates further. Expect further uptick to .6630/40, but we may yet see a pullback to .6540/30 thereafter. The uptrend resumes thereafter and the Kiwi make a move towards the .6750 top.
- EUR/JPY - the cross has been to 135.10 but is now in the process of completing the corrective pullback to 134.20 - 134.00. The cross should rally thereafter -- the next major focus being the 137.00 - 138.00 major resistance.
- EUR/CHF - the cross consolidates between 1.5440 and 1.5410, but the rally should resume thereafter. It should trigger an advance further beyond the 1.5450 top at some point. The cross should then push through to1.5550 and higher -- perhaps to 1.5600.
- EUR/GBP - the cross found new support at .6795; the uptrend may have resumed, and should take out the .6850 top thereafter. We expect it to eventually push through the range, which may trigger a rally to .7000.
- GBP/JPY - the currency pair may correct further towards 197.00. But the rally should get back on track, and make a beeline for the 205.00 target.
- GBP/CHF - no change in view -- any rally above 2.2700 suggests that the sell-off is over, and the cross looks up to 2.3000 focus once again. But break below 2.2450 trough looks dangerous and may eventually yield 2.2100. The cross still looks weak.
DEVELOPMENTS TO WATCH TODAY: Sept 13 - New York
- Industrial production in France, Europe's third-biggest economy, rose for a third month in July, led by food and machinery manufacturing. Growth in June was more than double the previous estimate. Production increased 0.2 percent from June, Paris-based government statistics office Insee said. In June, output climbed 0.5 percent from May, compared with the 0.2 percent initially reported. July output advanced 3.2 percent from a year earlier. Economists had expected a 0.3 percent July increase, according to the median forecast of 29.
- European Central Bank President Jean-Claude Trichet warned governments against easing the budget-deficit limits designed to buoy confidence in the euro currency. Trichet said central bankers oppose rewriting a regulation that forces governments to keep deficits below 3 percent of gross domestic product and sets a one-year deadline for fixing budgets that swell over the limit. Leaders of the 12 euro nations should ``utilize all the possibilities for improving the implementation but not to change the regulation,'' Trichet said in an interview Saturday after finance officials met in Scheveningen, Netherlands. Trichet is battling political leaders such as Germany's Gerhard Schroeder in an attempt to restore confidence in the $8.5 trillion economy after the weakest growth in a decade caused six countries, including Germany and France, to exceed the budget-deficit limit.
- Crude oil futures rose on concern hurricane Ivan may disrupt output and shipments in the Gulf of Mexico, source of a quarter of U.S. oil and gas production. Royal Dutch/Shell Group, BP Plc, Exxon Mobil Corp. and Kerr- McGee Corp. yesterday began evacuating non-essential workers from platforms in the eastern Gulf. Ivan is forecast to make landfall in Alabama, closer to rigs than Charley and Frances. Output may still be unaffected as the storm brushes past. Crude oil for October delivery rose 15 cents to 42.96 at 12:16 p.m. London time in electronic trading on the New York Mercantile Exchange after adding as much as 82 cents to $43.63 a barrel. It has gained 32 percent this year.
- Wal-Mart Stores Inc., the world's largest retailer, said September same-store sales are rising within forecast for a gain of 2 percent to 4 percent as shoppers bought back to school supplies. The discounter had forecast a gain of as much as 4 percent from a year earlier. Bentonville, Arkansas-based Wal-Mart updated results at U.S. stores open at least a year through Friday in a recorded call.
- OPEC, pumping oil at the fastest pace in 25 years, has little ammunition left to reduce near- record prices at a meeting in Vienna this week, and some analysts are forecasting crude above $40 a barrel for the rest of the year. Ministers of the OPEC, producer of about 40 percent of the world's oil, gather Sept. 15 in Vienna to consider raising the group's official output limits and price targets. OPEC is ignoring a current quota of 26 million barrels a day, producing 8.1 percent above that in August. The problem now is not one that OPEC can solve; New York oil will probably sell for $41 or $42 a barrel by year-end. Demand is the key variable; OPEC's got no more capacity to speak of.
FX Market Summary -
The dollar was slightly firmer against the most of the majors today. Against the euro, the dollar traded at 1.2238 from 1.2306, while the yen fell to 110.35 against the dollar from 109.60 late Friday. Sterling was firmer vs the greenback however, rising back to the 1.8010 from 1.7965 later Friday.
There is no data on the U.S. calendar today and very little other news to move markets, but tomorrow's Q2 current account data and August retail sales will be watched closely. Comments by Fed Board Governor Bies over the weekend noted that the Fed could afford to take on a gradual approach, since there was “no urgency” to hike, failed to impact markets significantly. Markets are fully pricing in another 25bps rate hike by the Fed on September 21.
The Euro zone data calendar was relative thin today, with only French IP data for July. According to Insee, total industrial activity expanded 0.2% (seasonally adjusted) in July from June, putting year-ago growth at 3.0%. The data continue to point to the fact that France's industrial sector is outperforming much of the rest of the euro area. However, tomorrow’s German Zew index will be key for assessing how the German industrial production data is shaping up. Finally, hawkish comments by ECB Chief Economist Issing noted that the central bank would take action if higher oil prices sparked inflationary pressures.
The Nikkei firmed but failed to provide any significant support for the yen. But on balance there is still scope for yen appreciation. Weekly portfolio flows data for the week ending September 3 showed foreign investors still have an appetite for yen denominated assets.
Sterling was firmer against the dollar today, but gains will moderate as the market downgrades expectations for further rate hikes. This week’s data will be key for further setting expectations. Today’s PPI for August showed that input prices climbed 1.6%(m/m) in August, pushing the annual rate of inflation to 4.8%. With inflation pressures mounting, we believe this will lead the Bank of England to hike interest rates by a further 25 basis points this year, bringing the benchmark policy rate to 5.0% by December. Other data on the calendar are the employment report on Wednesday and retail sales on Thursday.
Canadian Q2 productivity rose a modest 0.1%. Since Q1 2003, when productivity posted a 1.1% rise, the figures have largely been flat. This calls into question the long term prospects for Canada , as it clearly shows that very little headway has been made to restructure Canadian businesses to become more productive. The loonie may slow is upwards trajectory.
The Australian dollar rose on speculation the yield premium over the U.S. won't shrink as quickly as expected after Federal Reserve Governor Susan Bies said there was ``no urgency'' to increase U.S. interest rates. Australia's 3.75 percentage point rate advantage over the U.S. boosts the appeal of investing in the nation's assets such as government bonds. Bies' comments followed a report Friday showing an unexpected drop in U.S. wholesale producer prices. The Australian dollar rose to 69.75 U.S. cents at 12:33 p.m. in Sydney from 69.54 cents in late New York trading Friday. The Reserve Bank of Australia has kept its overnight cash rate target at 5.25 percent since December. Economists forecast that the central bank will raise its key rate a quarter point by year-end.
New Zealand's dollar may gain as the nation's higher interest rates boosts its appeal amid speculation a report this week will signal a respite in U.S. economic growth. Figures tomorrow may show the U.S. current account deficit widened to a record in the second quarter. That may boost demand for the New Zealand dollar after the central bank last week raised its official cash rate to 6.25 percent, widening the gap against the U.S. target rate to 4.75 percentage points. New Zealand's dollar, known as the Kiwi, on Friday posted its first winning week in three, and the gap between the nation's 10- year benchmark government bond yield and the U.S. comparable note widened 0.15 percentage point.
- EUR/USD - the single currency fell below the 1.2255 support as feared, initiating a short-term downward correction. There is a good chance that the single currency will correct back all the way to 1.2160/40. This is not yet a given, but we do see minimum decline to 1.2200, and if the level isd taken out, then watch the single currency gravitate lower towards the mid-1.2100s. In the near-term, we turn more bullish once the single currency goes above 1.2310 -- which has indeed shaped up to be a firm trendline technical resistance. We reiterate further, that there is no real reason for bulls to celebrate until 1.2500 hypothetical resistance is taken out.
- GBP/USD - the currency pair retests the 1.8022 resistance after PPI for August showed that input prices climbed 1.6%(m/m) in August, pushing the annual rate of inflation to 4.8%. With inflation pressures mounting, this may lead the Bank of England to hike interest rates by a further 25 basis points this year. The currency rose on short-covering; but watch 1.7925 support still --- if unable to hold, the currency pair may slide all the way back to 1.7820. The uptrend remains suspect until it takes out 1.8100.
- USD/JPY - the currency pair did again bounce back to 110.30 area and may extend gains to 110.60.65. However, the pair should resume the downtrend from there. The next targeted level may be 108.75 base, but any breach of support should bring about 107.00 quickly.
- USD/CHF - no change in the short-term oultlook -- the currency pair found support at 1.2520 and may rise back to 1.2680 - 1.2700 later in the week. But it should reinstate the downtrend thereafter, and may be bound for 1.2380. The downtrend reassert soon -- expect further declines to 1.2200 further out.
- USD/CAD -- the currency pair is indeed rising -- we scale up the target to 1.3000 - 1.3020. Nonetheless, this rally is countertrend -- the downtrend resumes thereafter, and may lead to the 1.2680 base further out.
- AUD/USD - the currency saw resistance at .7000 and may indeed fall back, but probably just to .6940, and not to the .6900 - .6885 support area. A rally toward .7080 is still expected to resume thereafter.
- NZD/USD - the currency pair has been to as high as .6605, but looks vulnerable to a pullback to .6520/10, perhaps not to .6480. The uptrend resumes thereafter and the Kiwi make a move towards the .6750 top.
- EUR/JPY - the cross has been to 134.90 and may pullback more modestly to 134.00 area. But the cross has made known its intentions to extend to 136.00; it may retrace thereafter possibly to 135.00 then make a new uptick to 137.50.
- EUR/CHF - the cross may yet fall back towards 1.5400 - 1.5390 -- but the rally should resume from there and will keep the configuration positive. It should trigger an advance further beyond the 1.5450 top at some point. The cross should then push through to1.5500 and higher -- perhaps to 1.5600.
- EUR/GBP - the cross may find new support at .6760 -- lower than expected -- but the uptrend resumes from those lower levels, and should take out the .6850 top thereafter. We expect it to eventually push through the range, which may trigger a rally to .7000.
- GBP/JPY - the rally indeed found support at 196.40 and has been to 198.65. The cross should rise further to 199.70 next. It should make a downside correction thereafter after which a new uptrend focuses at 205.00 resisatnce area.
- GBP/CHF - any rally above 2.2700 suggests that the sell-off is over, and the cross looks up to 2.3000 focus once again. But break below 2.2450 trough looks dangerous and may eventually yield 2.2100. The cross still looks weak.
News, data, references and commentaries compiled from Bloomberg, Reuters, Financial Times, Wall Street Journal, Dow-Jones, CBSMarketWatch, Briefing.com, and Economy.com
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