Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Apr 27 09 01:21 GMT |

News And Views Improved risk sentiment, including a 1.7% gain in the S&P 500, cooled USD slightly and helped AUD and NZD post clear gains. Bank stocks closed +2.9% though three small banks were shuttered, bring the 2009 total to 28. The release of the methodology and some vague indications of the results from the bank stress tests were in line with previous Fed/Treasury comments and not too enlightening. The 10yr Treasury sold off in the improved risk environment from 2.92% to 2.99%. NZD/USD jumped from 0.5640 to 0.5685 and extended to 0.5725 by the NY close. Similarly, AUD/USD popped up 40 pips with the euro to 0.7185, eased a little then, backed by solidifying US equity gains, pressed on to finish near its highs, at 0.7230. Commodities were mostly stronger, e.g. LME copper +3%, aluminium +0.6%, NYMEX crude oil about +2 to $51.55/bbl. The euro got a boost from the better than expected reading on German business confidence in the IFO survey. The report helped EUR/USD punch through 1.3200 in the London morning, to the 1.3270 area. Sterling showed little reaction to mixed UK data: Mar retail sales comfortably ahead of expectations (+0.3%) but the -1.9% Q1 GDP contraction was dreadful. US new home sales down 0.8% in March, but upward revisions to recent months added a further 31k (annualised) sales to the recent profile, which now looks like some sort of base might have formed in Q1. But these data are always subject to significant revision so that is a very tentative inference at this stage. US durable goods orders down 0.8% in March. Durable goods orders posted a moderate fall in March although with February revised down from 3.4% to 2.1% the report was a little softer in some of the detail. That said, the back to back rises in core capital goods orders in Feb-Mar are a modestly positive signal, though the cumulative 18% slump in that component in Dec-Jan means the latest data point more to stabilisation at weak levels rather than recovery. Inventories and shipments continued to fall sharply consistent with our view that destocking and falling business investment spending will be significant drags on Q1 GDP growth. Japan all industry index fell 2% in February, with the service sector slipping 0.8%mth with the annual pace moderating to -2.7%yr from -3.5%yr on base effects following on from the known 9.4%mth drop in industrial production. The construction sector increased 1.0%mth in February, while public administration was flat in the month. German IFO business climate index rises to 83.7 in Apr. German business confidence lifted off its March record low in April, with a fourth consecutive rise in expectations being complemented by the first rise in the current assessment this year. Even so, the overall index is best characterised as bottoming out rather than in recovery phase yet. UK GDP contracted at its fastest quarterly and annual pace in almost thirty years in Q1 this year. The limited breakdown available in this advance report showed the 1.9% quarterly decline reflected construction down 2.4%, manufacturing off a huge 6.2% and services shrinking 1.2%, including 1.8% for business services and finance. UK retail sales rose 0.3% in Mar, mainly food driven, with non-food sales down 0.2% driven by the third month of decline in household goods, sales of which are off 10% since the end of 2008. Outlook We are bearish on NZD crosses short term, especially with the RBNZ decision looming, threatening to push rates lower along the yield curve. Events Today Date Country Release Last Forecast 27-Apr US Apr Dallas Fed Manuf Activity –49.0% –35.0% Ger May Gfk Consumer Confidence 2.4 2.3 Mar Import Price Index –0.1% –0.1% UK Apr House Prices %yr –15.7% – Mar BBA Mortgage Approvals $bn 28.2 – 28-Apr US S&P/CS Feb House Prices %yr –19.0% –19.0% Apr CB Consumer Confidence 26 30 Apr Richmond Fed Factory Index –20 –15 Jpn Mar Retail Trade %mth –0.2% –1.0% Ger Apr CPI Prelim %yr 0.50% 0.60% UK Apr CBI Distributive Trades 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. 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