Daily Forex Fundamentals | Written by Westpac Institutional Bank | Sep 08 08 01:15 GMT |

Forex Exchange Morning Report News And Views The sharp rise in US unemployment in Aug produced volatile price action on the US dollar, ultimately leaving it little changed. While the headline payrolls reading was worse than expected (-84K), especially given downward revisions, there were rumours that the 6.1% jobless rate (forecast 5.7%) was an error. USD also recovered after its payrolls sell-off with help from a steady DJIA rally from its NY morning lows around -145pts to a 33pt gain at the close. Oil prices were volatile, NYMEX crude whipping around $105.15-108.10/bbl, finishing in the low $106s. The New Zealand dollar licked its wounds after Thursday's slide, trading a 0.6618 - 0.6709 range. AUD/USD hit its 0.8028 low very briefly amid the post-NFP whipsaw trade but mostly printed above 0.8100 and closed at 0.8159. EUR/USD was subdued ahead of payrolls then ignited into a 125 pip range (high 1.4349), easing back to 1.4267 at the close. USD/JPY slipped as low as 105.53 but generally traded higher as Wall St recovered and caught a late bid on the WSJ report that Treasury was close to finalizing its plan to support FNM and FRE. US payrolls jobs down 84k in Aug. Total payrolls were down 84k but revisions to June and July shaved another 58k off the bottom line, though 52k of that revision was to government jobs (the reverse of last month when 37k of the 26k upward revision to May-June was in government jobs). The separate household survey identified 342k job losers, and with another 250k people joining the labour force, unemployment rose 592k, enough to push the jobless rate up from 5.7% to 6.1%, its highest since late 2003. Payrolls job losses have been very broad-based in recent months. Apart from non-cyclical education & health and government, no other industry sector has posted any jobs growth whatsoever since April. In August, construction job losses were mild at just 8k, well below the recent 3 month average loss of 26k, whereas factory jobs slumped 61k, (compared to 48k average). Within services, retail and business services including temps recorded above average jobs losses. One minor August bright spot was a 0.4% increase in hourly earnings, on top of a similar gain in July. But hours worked were down 0.1% in the month and a steep 1.8% annualised in the three months to August which will tend to constrain household income growth, just as the tax rebates wind down. US impaired mortgage data showed 6.4% of loans in default: sub-prime defaults may have peaked in Q1 but prime defaults continued to rise in Q2 and foreclosures, which lag delinquencies, rose across the board. Japanese Q2 GDP will be revised down heavily. The MOF's quarterly enterprise survey showed a sharp retrenchment in capital spending in Q2. That will flow straight through to an even weaker bottom line for non-residential investment in the second estimate of GDP. The economy likely contracted 1% in the quarter rather than the preliminary estimate of -0.6%. Non-manufacturing firms were more aggressive in their cutbacks. German industrial production down 1.8% in July. More evidence that the German economy is losing steam. Factory output turned negative in annual terms for the first time in almost five years, falling 0.6% yr, adding to the chances of an eventual ECB rate cut, in 2009. Canadian employment up 15k in Aug, only partially reversing its steep July plunge although the make-up of the gain was favourable, with private sector/full-time jobs, including in factories and construction, bouncing back while public sector jobs declined. Even so, the trend in jobs is now negative and if it weren't for the still low jobless rate we would be ascribing a higher probability to the chance of a further rate cut before year-end. Separately, the Aug Ivey PMI fell to 51.5 from 65.5 in July. It is not seasonally adjusted but the August result looks weak. Outlook We are broadly neutral NZD/USD but bearish NZD vs AUD ahead of the expected RBNZ rate cut on 11 Sep. Events Today Country Release Last Forecast NZ Q2 Building Work Put in Place -6.3% - Aus RBA Governor Testimony to Parliament - - Aug ANZ Job Ads -0.3% - US Jul Consumer Credit $bn 14.3 8.6 Fedspeak: Fisher - - Jpn Aug Bank Lending %yr 1.80% - Aug Economy Watchers Survey 29.3 - Eur Sep Sentix Investor Confidence -15.3 -20 UK Aug Producer Prices %yr 6.70% 6.60% Can Jul Building Permits -5.3% -0.5% Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer 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.