Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Dec 01 08 02:38 GMT |

News And Views Bullish US equity markets during a shortened-Friday session (Dow up 1.2%) were outweighed by negative European data (Eurozone inflation lower than expected at 2.1% November yoy, and unemployment higher than expected at 7.7%) for a net bearish effect on non-USD currencies. The highlight of this week will clearly be the central bank monetary policy decisions, with rate cuts expected in New Zealand, Australia, Eurozone, and the UK. After a very quiet NZ session on Friday, the EUR sell-off was contagious for the NZD, falling almost a cent to around 54.5 cents, before recovering a half cent where it remains. The main drivers of NZD direction this week will be the US equity markets (as usual) and the size of the rate cut on Thursday. More analysts have joined the 150bp-cut camp, but that doesn't mean it will be so; Westpac's forecast is 100bp. The AUD also followed the EUR's lead, and fell a cent to slightly under 0.65 where it is currently trading. The AUD/NZD cross rate remained stable in a narrow range around the 1.19 level. The negative news regarding a larger than expected inflation fall and unemployment, combined with end-of-month USD dynamics, was responsible for a large fall in EUR from around 1.295 to 1.265, ending the US session at 1.27. Significantly lower interest rate projections for Eurozone are now being priced in by the market, a 50bp cut (to 2.75%) expected at Thursday's ECB meeting. One investment bank is now forecasting a 2% overnight rate for 2009. USD/JPY posted a small gain, from 95.14 to 95.75. No US data to report. Japanese data: industrial production slumped -3.1%mth, -7.1%yr in Oct. Nomura/ JMMA PMI slumped from 42.2 to 36.7 in Nov. Oct real household spending down -1.4%mth, -3.8%yr. Retail trade was a little better, sales down just -0.6%mth in Oct after a -0.5%mth decline in Sep but sales for large retailers were down -4.3%yr. The unemployment rate declined to 3.7% in Oct and employment rose by 70k, but this follows a 110k drop in Sep and average falls of 142k a month since May. The jobs-toapplicants ratio fell to 0.8 from 0.84 previously. The nationwide consumer price inflation headline for Oct fell to 1.7%yr from 2.1%yr in Sep with prices down -0.2% in the month. The ex fresh food and ex fresh food & energy measures came in at 1.9%yr and 0.2%yr respectively. The Tokyo series recorded a 1.1%yr pace in Nov with prices flat. The Eurozone CPI flash estimate plunged to 2.1% in November from 3.2% yr in October. Lower oil prices, and a favourable base effect as a strong read for last November dropped out of the annual rate, were expected to bring the inflation rate down sharply, but even so this was further than expected. Inflation is rapidly approaching the ECB's target of ‘slightly less than 2%', giving the ECB more room to ease rates. Eurozone unemployment rose to 7.7% in October, from an upwardly revised 7.6% in September. Unemployment is rising quickly in those countries that have experienced the largest boom-and-bust cycle in housing, such as Spain and Ireland. German employment is holding up relatively well, but is expected to succumb through next year. UK GfK consumer confidence rose 1 point to -35 in November. The survey found that people were more confident about their finances for the next year and more willing to make big purchases, with expectations for the general economic situation rising slightly. Even so, the index remained near the series low of -39 set in August. UK CBI retail trade survey fell from -27 to -46 in November, matching the record low set in August. Industry data for the retail sector has been far weaker than the official retail spending statistics, and appear more consistent with the realities of heavy discounting and store closures. Outlook The NZD looks technically sticky at 0.5550, and given it has rallied 3.5 cents since last week, today will likely see it taking a breather, ranging between 0.5450 and 0.5550. Country Release Last Forecast Aus Nov TD-MI Inflation Gauge –0.2% – Q3 Company Profits 14.30% 5.50% Q3 Inventories, ppt contribution –0.5 flat US Nov ISM Manufacturing 38.9 38.2 Oct Construction Spending –0.3% –1.2% Jpn Oct Labour Cash Earnings %yr 0.10% 0.10% Eur Nov PMI Factory (F) 36.2 a 36.2 UK Oct Net Consumer Credit £bn 0.3 0 Oct Net Mortgage Lending £bn 2.2 1 Nov PMI Factory 41.5 39 Nov House Prices %yr (due 1-5 Dec) –13.7% –14.0% Can Sep GDP –0.3% 0.20% Q3 GDP % ann’lsd 0.30% 0.80% 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.