Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | May 06 09 01:42 GMT |

News And Views Risk appetite directed at currencies. While US equities paused for breath, position squaring ahead of Thursday's bank stress test results partly responsible, the likes of AUD, NZD, and GBP currencies closed the last 24 hours slightly firmer. US ISM data delivered a positive surprise, and the Fed's Bernanke delivered a cautiously upbeat testimony, speaking of signs of bottoming in the US housing market. The S&&P500 closed down 0.4%, while commodities saw larger profittaking, oil -1.1% and copper -3.1%. The abatement of funding pressures in the US continues - 3mth Libor 2bp lower at 0.99%, and the TED spread poised to fall below 83bp technical support. EUR spiked during Europe to 1.3430, before falling to the 1.3300 area, concerns that the ECB meeting on Thursday may reveal unconventional measures weighing. GBP ended the evening session slightly stronger, spiking from 1.5000 to 1.5160, and settling at 1.5070. UK construction PMI was a positive surprise, and the market is looking for a stronger consumer confidence number this morning. JPY tracked sideways just under 99. After hovering around the 0.7400 level for most of the domestic session, AUD followed EUR to 0.7480 before falling back to the earlier level, currently at 0.7415. NZD moved off 0.5750 support early Europe, and peaked at 0.5865 before slipping under 0.5800. AUD/NZD spent most of the evening under 1.2800, currently consolidating around that level. US non-factory ISM up from 40.8 to 43.7 in Apr. The non-manufacturing PMI continued its uptrend from last October's 37.4 low-point, though April's 43.7 reading still implies a significant pace of services/construction contraction at the start of the current quarter. As with most of the regional and national factory surveys for April, the orders component was notably stronger, whereas the improvement in the jobs measure was less impressive. Even so, the weight of survey evidence supports the view that the monthly pace of decline in payrolls jobs has probably past its peak (of -741k in January). Fed chairman Ben Bernanke testified before the Joint Economic Committee. Some of his comments were hopeful: 'the recent data also suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing... the housing market, which has been in decline for three years, has also shown some signs of bottoming... we continue to expect economic activity to bottom out, then to turn up later this year.' But risks remain: 'An important caveat is that our forecast assumes continuing gradual repair of the financial system; a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall.' And when recovery arrives, it won't be impressive: 'We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly.' Euroland producer prices -3.1% yr in Mar. The PPI has fallen for eight months running and their annual pace of contraction is the steepest ever recorded. UK construction PMI up from 31 to 38 in Apr. As with most other PMIs around the world, the UK construction PMI posted a decent gain last month, indicating a slower pace of contraction in the building industry at the start of the second quarter. Outlook Upward momentum was checked last night, and a range of 0.5750 to 0.5850 is likely to contain action today. Event risk today stems from today's private wages report, as well as Australia's retail sales. Events Today Country Release Last Forecast NZ Q1 Labour Cost Index Private Ord Time 0.70% 0.50% Aus Mar Retail Sales (seas adj) -2.0% -0.5% Q1 Real Retail Sales 0.80% 0.20% Mar International Trade Balance, AUDbn 2.1 1.7 US Apr Layoff Announcements 150k - Apr ADP Private Payrolls Change -742k -645k Fedspeak: Yellen Eur Apr PMI Services (F) 43.1a 43.1 Mar Retail Sales -0.6% flat UK Apr PMI Services 45.5 46 Apr BRC Shop Price Index %yr 2.00% - Can Mar Building Permits -15.9% 2.80% Apr Ivey PMI 43.2 36 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.