Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Oct 21 08 01:25 GMT |

News And Views The week started on a relatively quiet note, though there were good-size falls in EUR, GBP and CHF vs USD. US equities opened higher and remained there mid-afternoon NY. Broad improvement in risk appetite included a 36bp fall in 3mth USD LIBOR to 4.06%, its lowest fixing since 30 Sep. In testimony to a House committee, Fed chief Bernanke deemed suggestions of further fiscal stimulus to be 'appropriate', without endorsing specific suggestions. NZD/USD recovered from a dip to 0.6119 in London, rallying firmly back to the 0.6240-50 area in NY as the DJIA extended its gains to 240pts. AUD/USD traded a roughly 0.6900 - 0.7040 range in London/NY, suffering amid heavy GBP and EUR selling but back to the higher end of the range in the NY afternoon. EUR/USD had probed above 1.3500 in London but ran out of steam, retreating to the 1.3320 area in NY. Equity gains and lower risk aversion lent less support to USD/JPY than might have been expected, with EUR/JPY selling seen in London. USD/JPY slipped from highs around 102.40 to 101.75. Fed chair Ben Bernanke testimony. Looking very tired and drawn, the Fed chairman patiently dealt with a string of mostly ill-informed and pointless questions from law-makers in the House. His prepared testimony endorsed a further fiscal package to stimulate the economy. US leading index rises 0.3% in Sep, but Aug revised down from -0.5% to -0.9%. The downward revision was due to orders and we suspect the assumption for Sep orders is also not weak enough so Sep will likely be revised down too (orders data not due till next week). Also the money supply component added almost 0.5 ppts to the Sep gain, which is probably a function of the recent financial turmoil and so is another reason to mistrust the apparently strong Sep signal. German PPI accelerates to 8.3% yr in Sep. This surprise rebound from 8.1%yr in Aug was due to pre-announced utility bill increases offsetting the downward impact from crude energy prices. UK public sector finances deteriorating. The Sep public sector net borrowing was £8.1bn, almost double the deficit position a year earlier. Full year borrowing in FY2008/09 will approach £60bn. There will be substantial further borrowing gains as the financial rescue packages hit the numbers. Canadian wholesale sales fall 1.5% in Aug. This was the first fall since Feb, and was driven mainly by a sharp fall in autos. Outlook The 100bp cash rate cut we expect from the RBNZ on Thursday should help limit the scope of any NZD/USD rallies. At the margin, the lack of long NZD longs to be unwound still helps the currency versus AUD during risk aversion surges and vice versa Events Today Country Release Last Forecast NZ Q3 CPI 1.60% 1.70% Jun Food Prices 2.70% – Sep Credit Card Transactions –0.1% – Aus RBA Governor speaks, 1:10pm Oct RBA Board Minutes, 11:30am Sep Motor Vehicle Sales –3.5% flat US Fedspeak: Stern Oct CBI Industrial Trends Survey Can BoC Rate Decision 2.50% 2.25% 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.