Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Nov 18 08 01:40 GMT |

News And Views Currency markets were largely subdued after the New Zealand close, with the US equity markets again driving most of the movement. Asian equities remained largely stable, Europe ended weaker, and the Dow Jones index initially fell 250 points. The ensuing Dow recovery, led to mild gains in most currencies against the USD. NZD firmed slightly to around 0.56 after the Dow recovered, and is holding that level at the time of writing. Earlier news of a NZ food price fall of 0.3% in October had no material effect on the currency. Interest rate investor activity saw 10 year swap rates fall 20 basis points, with the yield curve flattening by 6 basis points during the day; our steepening view remains intact. The Dow's recovery similarly helped AUD firm to almost 0.66, and EUR to 127.40. US NY Fed index slips from -24.6 to -25.4 in Nov. The Empire State index posted a new all time low this month (though note the survey only began in 2001). Some of the key detail posted steeper declines than the headline, including orders, shipments and especially jobs, which plunged from -4 to -29, adding weight to the view that the labour market is now deteriorating rapidly. US industrial production rises 1.3% in Oct, but Sep was revised down from -2.8% to -3.7%. The Oct rise reflected a partial bounce from the hurricane disruption that weighed down the Sep result, however the Fed pointed out that even excluding the tempests and the Boeing strike (which ended at the start of Nov), production would have fallen about 0.7% over the two months. Hence the underlying factory picture is one of contraction, broadly consistent with the message from the business surveys. Japan slips into a recession. Growth contracted 0.1%qtr (0.4%saar) following in from a revised 0.9% fall in Q2. Combined with a corresponding contraction in the Eurozone and the US, the world now has to suffer with the largest developed industrialised powers in a recession. In Japan's case, this is first time since 2001 that economic output has fallen for two consecutive quarters and was the result of weaker net exports (-0.2ppt) and capital spending (-1.7%qtr), a sign the world's second largest economy has also become a victim of the global credit crisis and the collapse in trade activity. Consumer spending did rise 0.3%qtr, more than expected, but the seasonal factors such as a hot summer and the Olympics may have had a role to play suggesting there is a risk consumption growth may stall in Q4. The Euroland trade deficit was €5.7bn in Sep, the same as in August. Despite lower oil prices, the deficit remains at record levels due tom weak export demand. UK house prices down 2.9% in Nov. The Rightmove house price index fell sharply this month, though the annual pace of decline of -7.1% yr still lags the major lender house price series which have prices down around -15%yr. Outlook We expect the NZD to retain its weak bias, being capped at 0.58, and supported at 0.5350 - 0.5400. That support is likely to be tested during the next few weeks, given our expectations of a 100bp cut in the OCR rate in December. Date Country Release Last Forecast 18-Nov Aus Nov RBA Board Meeting Minutes Oct Merchandise Imports AUDbn 21.0 – US Oct Producer Prices –0.4% –2.2% Oct PPI Core 0.4% 0.10% Sep TIC Data $bn 14.0 17.5 Nov NAHB Housing Market Index 14 15 Jpn Sep Leading Index %mth 0.2% – UK Oct CPI %yr 5.2% 4.30% 19-Nov NZ Q3 Producer Output Prices 3.50% 1.50% Q3 Producer Input Prices 5.60% 2.00% Aus Sep Westpac-MI Leading Index 2.50% – 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.