Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Oct 31 08 01:45 GMT |

News And Views The USD index gained about 1.5% from late Asia to the NY afternoon, brushing off the expected small negative on US Q3 GDP. There was much talk of potentially huge USD demand from equity fund managers for month-end currency hedging adjustments tonight, encouraging speculative USD buying ahead of it. The Dow chopped around, trading back to almost +200pts this morning. NZD/USD whipped around in London, mostly weaker in line with broad USD demand, but hasn't lost much ground overall, awaiting its next cue. AUD/USD came under selling pressure in London with talk of large flows at the fixing in what traders described as EM-thin trade. Lukewarm US equities and softer commodities also cooled AUD as it spent much of London/NY with a 0.6700 handle. EUR/USD came under pressure from anticipation of month-end USD demand and with unease over EUR15bn in looming Eurozone bond redemptions. The pair sank as far as 1.2805 from a 1.32 handle in early Europe. USD/JPY kept an eye on Wall Street as usual, trading mostly in the mid-98s as the Dow mostly met pre-market expectations of a reasonable rally. US GDP fell by an annualised 0.3% in Q3, slightly better than the market was expecting. Real consumer spending fell by 3.1%, but that comprised a 2.1% nominal gain and a hefty 5.4% rise in prices. With gasoline prices in particular on the way down now, this result will be partially reversed in Q4. Net exports contributed less than expected to growth, though this component is one of the most prone to revisions. Residential construction was a major drag on growth as expected, with the housing market yet to find a bottom, but this was partly offset by strong growth in non-residential construction. GDP is likely to contract even further in Q4, fulfilling the technical definition of a recession, in case anyone was left in doubt. US initial jobless claims unchanged at 479k last week. By now these figures should be free of distortions from hurricanes, strikes and changes to claims rules, and they point to a sharp acceleration in the pace of job losses over coming months. We expect non-farm payrolls for October (published next week) to fall by 200k. Eurozone confidence surveys for October were weaker across the board. The business climate index fell from -0.82 to -1.34, consumer confidence fell from -19 to -24, and economic confidence fell from 87.5 to 80.4. All of these measures were at or close to their lowest levels since 1993 (though they have some way to go to match the low point of that cycle). The retail PMI also fell from 46.2 to 44.3, well below the break-even level of 50, but this survey is very volatile and has been lower this year. These figures further support the case for the ECB to continue easing rates. German unemployment fell by 26k in September, bringing the unemployment rate down slightly to 7.5%. Outlook We are neutral on NZD in the short term. Early signs of an improving risk environment point to some unwinding of recent selling against USD, but it is also likely to lose ground against AUD. Longer term, NZD will need to remain below average for an extended period to soften the blow of a weaker world economy. Events Today Date Country Release Last Forecast 31-Oct Aus Sep Private Credit 0.50% 0.40% RBA Assist Gov Debelle speaks (1:30pm) – US Sep Personal Income 0.50% flat Sep Personal Spending flat –0.3% Sep Core PCE Deflator 0.20% 0.10% Q3 Employment Cost Index 0.70% 0.70% Oct Chicago PMI 56.7 45 Oct UoM Consumer Sentiment (F) 57.5a 60 Jpn Sep Unemployment Rate 4.20% – Oct Tokyo CPI %yr 1.40% – Sep National CPI %yr 2.10% – Sep Household Spending %yr –4.0% – Sep Housing Starts %yr 53.60% – Sep Construction Orders %yr –0.3% – Bank of Japan Meeting 0.50% 0.50% Eur Oct CPI %yr Flash 3.60% 3.40% Sep Unemployment Rate % 7.50% 7.50% UK Oct GfK Consumer Confidence –32 –35 Can Aug GDP 0.70% – 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.