Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Sep 12 08 01:29 GMT |

News And Views USD Index saw some volatility as usual but by late NY was little flat versus late Asia- Pacific trade. Lehman Bros' shares sank another 45% as it dominated attention again. Moody's warned that to avoid a rating downgrade, LEH needed a 'stronger financial partner'... 'near term'. Wires reported that potential buyers are reviewing Lehmans' books. Other financial stocks were also weak, including MER -19%, Wachovia -9% and fresh 18 year lows for Washington Mutual in the final half hour of trade. However, after opening sharply lower (DJIA -170pts early), equity sentiment improved, with major indices up about 0.5% near the close. Rumours of an emergency Fed rate cut swirled. NY oil prices fell as low as $100.10/bbl. European investors responded to the RBNZ's aggressive easing by marking NZD/USD as low as 0.6441 but the pair quietly recovered to 0.6500 as the DJIA pressed higher. AUD/USD dipped to 0.7900 in the London morning but found buyers thereafter and rallied overall, to about 0.8000. EUR/USD was quiet by recent standards, with a low of 1.3882 but back to flat at 1.3940 into the NY close. Heightened risk aversion drove USD/JPY down a full yen in the London morning to a low of 106.07 but it ground back to 106.75 in NY as equity markets improved. The US trade deficit widened to -$62.2bn in July, capturing the peak in prices of crude oil imports. However, trade prices for August showed a hefty 3.7% drop in import prices, as oil reversed during the month, which should see the deficit drop below $60bn in coming months. Export prices were also fell by 1.7% in August, with agricultural prices down 9.6%. This will partly reflect the sharp rise in the US dollar over the month, but also suggests some easing in food prices. US initial jobless claims 445k in the first week of September, from an upwardly revised 451k the previous week. Though the figures have been distorted by the promotion of new claims arrangements, which attracted large numbers of people into claims offices, it is becoming clear that claims have taken a sizeable step upward in the last few months. Continuing claims also rose sharply to 3525k from 3403k the previous week. Japanese machinery orders were on expectations in July. The core measure fell 3.9% in the month, in line with forecasts. That follows a -2.6% outcome in June and a 10.4% jump in May. The ECB monthly report largely mirrored president Trichet's recent statements. The report said that inflation is at a 'worrying level' and unlikely to reach the 'just below 2%' target until 2010. Risks to growth are to the downside, but the risk of a wage-price spiral is still a major concern. The Bank of England spoke to the Treasury Select Committee, with five MPC members attending. Super-dove Blanchflower probably captured the most attention with his pessimistic forecasts, but the other members, including Governor King, were fairly balanced. King said that lower oil prices meant that inflation would not peak as high as first thought, but stressed that upside risks to wage and price inflation remain. Canada new home prices rose 0.1% in July, bringing the annual rate of growth down to 2.7%. Slower price gains are consistent with the cooling in sales and building activity seen this year. Canada trade surplus narrowed to $4.9bn in July. Exports were strong across all sectors except energy, as higher fuel prices weighed. Imports were also strong, with an 8% jump in imports from the US. Outlook The RBNZ's choice of -50bp provides markets with fresh ammunition to sell NZD, both against USD and our preferred trade, versus AUD. Events Today Country Release Last Forecast NZ Jul Retail Sales 0.90% –0.3% US Aug PPI 1.20% –0.8% Aug PPI Core 0.70% flat Aug Retail Sales –0.1% 1.00% Aug Retail Sales Ex Auto 0.40% –0.5% Sep UoM Consumer Sentiment (Prelim) 63 65 Jul Business Inventories 0.70% 0.50% Jpn Q2 GDP (F) %qtr –0.6% –0.9% Eur Jul Industrial Production flat –0.5% Can Q2 Capacity Utilisation Rate % 79.80% 79.50% 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.