Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Oct 23 08 01:30 GMT |

News And Views USD Index was curiously quiet and range-bound in London/NY after brutal price action in Asia-Pacific trade Wed, even paying little attention to heavy losses on Wall Street. Three month USD LIBOR fell for an eighth straight session, -29bp to 3.54% while overnight dollars slid to a 4 year low of 1.12% (this peaked on 30 Sep at 6.875%). But worries over emerging markets deepened, with Brazil's Bovespa -9% in afternoon trade and Argentina's Merval -18% as its desperate government planned to take over private pension funds. NZD/USD recaptured the 0.6000 handle for a while in London but jagged below 0.5900 in NY as traders counted down to the RBNZ decision and AUD/NZD marched firmly from 1.1150 to over 1.1400. AUD/USD stabilized quite well after sliding in the scramble for USD in the London morning, recovering from its 0.6630 low to spend most of NY trade above 0.6700, despite US equity losses. After wild selling in Asia-Pac trade, EUR/USD steadied in the mid-1.2800s in London/NY, showing no great inclination to either keep sliding or bounce. European stock markets were routed, the DJ Euro Stoxx 50 -5.4%. USD/JPY saw occasional fleeting rallies but mostly continued its two-day downward trend, to 98.25 in the NY afternoon. No US data to report. Japan August all-industry index declined 1.8%mth following 0.8%mth gain in July, painting a picture of a slowdown in Japanese production, amid signs of a global downturn. This followed the rebound of the index in Q2 after declining in Q1 suggesting a faltering growth profile this year. The August all-industry index included earlier reports showing tertiary index declining 1.4%mth, in sympathy industrial production falling 3.5%mth. These were partly balanced by the construction sector rebounding 1.9%mth after sinking in July to its lowest level in over a decade. Bank of England minutes reveal unanimous 9:0 vote to cut 50bp on October 8. The economy had 'deteriorated substantially', which meant that inflation would slow towards the 2% target more quickly than previously thought, 'making a strong argument for participating in the proposed co-ordinated international action'. Speaking yesterday, BoE Governor King admitted the economy was now 'entering recession', paving the way for further easing in coming months. Canadian retail sales down 0.3% in Aug. Weakness in auto sales was compounded by falling gasoline sales (due to lower prices). Other sales were mixed, with apparel down for the second month running but food and building supplies posting gains. In other news, the Sep leading index fell 0.2%, its first decline since March this year, suggesting that the growth outlook is deteriorating again. Outlook The Q3 CPI was as expected and should not affect the RBNZ's decision today. We continue to expect a 100bp cash rate cut which should help limit the scope of any NZD/USD rallies but of course eyes mostly remain on the US. Events Today Country Release Last Forecast NZ RBNZ OCR Review 7.50% 6.50% US Initial Jobless Claims w/e 18/11 461k 465k Aug House Prices –0.6% –0.5% Jpn Sep Trade Balance ¥bn –113 131 Eur Aug Current Account €bn –1.7 – Aug Industrial Orders 1.00% 1.50% UK Sep Retail Sales 1.20% –1.5% Sep Housing Loans £bn 21.1 – Can BoC Monetary Policy Report 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.