Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Sep 25 08 01:52 GMT |

News And Views The US dollar and equities oscillated on various headlines from Washington D.C. as Fed chief Bernanke testified on the economy and the debate continued over the Treasury's bailout plan. Ultimately the dollar emerged a touch stronger, with no outcome clear yet and equities steadying. Indeed, the DJIA flipped between small gains and losses numerous times on the day, before finally slipping in late trade to -90pts. NZD/USD was quiet, trading 0.6817-0.6887, with no real momentum. AUD/USD traded about a one cent range (high of 0.8429), heading to the NY close at the lower end of that range as equities softened. EUR/USD was choppy, rallying to about 80 pips to its high 1.4747 high in the London/ NY overlap then retreating to the 1.4640 area, with model fund buying of USD vs basket reported. The euro suffered surprisingly little damage on the poor Sep German IFO survey which points to negative Q3 GDP i.e. 'technical' recession. USD/JPY was dull, wandering from lows around 105.55 to about 106.25, paying little attention to anything. US existing home sales fall 2.2% in Aug, but have actually been 'bouncing along the bottom' for almost a year now. Since October last year, sales have ranged between 4.85-5.06 mn annualised, compared to their 7.25mn annualised peak three years ago (in September 2005). Sales have been boosted to some extent by distressed/foreclosure-related transactions at discounted prices, and we suspect that the continued downtrend in new home sales is to some extent a function of that (i.e. existing sales are cannibalising new sales). Note that in August the NAR median price measure for existing homes recorded its steepest annual pace of decline yet (9.5% yr), but corresponding to that, the stock of unsold homes actually declined somewhat, in terms of months required to clear it at the current sales pace. More testimony from Bernanke and Paulson. The Fed chair reiterated that 'the downside risks to the outlook remain a significant concern...[but] the upside risks to inflation remain a significant concern as well.' The Treasury Secretary continued to emphasise the need to approve Treasury's bailout package quickly, but made some concessions to Congress' concerns, such as limits on executive pay for firms that participate in the bailout. Japanese business survey improves but still negative. The September MoF Business Outlook Survey of large firms' current conditions index was -10.2, remaining below the neutral level, but an improvement from -15.2 in June. June was the weakest reading under new survey begun in June 2004. The reading for large manufacturers lifted to -10.0 in Sep from -15.1, with non-manufacturers improving to -10.2 from -15.3. Capital spending plans for 'all companies' for FY08 slipped to -2.4%yr from the June projection of -0.9%yr. German Ifo business climate index falls from 94.8 to 92.9 in Sep. German business confidence stumbled again this month, with favourable developments (weaker euro, lower oil prices) swamped by concern about current financial market turmoil. Also, the Euroland current account deficit narrowed to €1.7bn sa in July, making it five monthly deficits in the first seven months of the year. Euroland is probably heading for a small full-year deficit in 2008, after a balanced external account last year. UK retailing remains weak. The latest CBI retail survey recovered from its 25 year low in August but its September reading was still the third lowest on record and remains consistent with a much weaker pace of retail sales growth than recorded in the latest official retail report, which we think overstated August sales due to cooler weather bringing forward winter clothing purchases. Outlook NZD/USD remains prone to US-driven volatility but our bias is towards underlying decline ahead of what should be poor NZ GDP data on Friday and with dairy prices slammed by the Chinese milk scandal. AUD/NZD remains a buy on dips, targeting 1.25. Events Today Country Release Last Forecast Aus RBA Financial Stability Review US Aug Durable Goods Orders 1.30% –2.5% Initial Jobless Claims w/e 20/9 455k 450k Aug New Home Sales 2.40% –3.0% Fed Chair Bernanke testimony re Fannie & Freddie Fedspeak: Warsh, Evans & Fisher Jpn Aug Trade Balance ¥bn 172 113 Aug Corp. Services Prices %yr 1.30% 1.20% Eur Aug Money Supply M3 %yr 9.30% 9.00% Ger Oct GfK Consumer Confidence 1.5 1.5 UK Sep Nationwide House Prices %yr –10.5% –13.0% 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.