Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | May 11 09 01:18 GMT |

News And Views Optimism intact. The US payrolls report was better than expected, but pointed to a still weak labour market. Nevertheless, risk aversion barometer VIX, at 32, is now convincingly in risk seeking territory (under 40), and is poised to head into its 20-30 range of calmer times. The S&P500 gained 2.4%, banks 12.1%, relieved that banks appeared sound post-stress test results. Oil gained 3.4% to $59, a break of the technical $60 looking ominous. US 3mth Libor fell 2bp to 0.94%, and 10 year treasuries had a good day, rallying 4bp. G20 sovereign credit spreads continued to contract, by 5 to 15 bp on Friday. Bank of America managed to sell $3 billion of 5yr notes without any FDIC guarantee, injecting confidence into credit markets. Bullish US equities gave chartists license to propel the US dollar (DXY) lower to 82.39 as it broke some important technical levels, namely the 200 day moving average (83.13) and rising trendline support. The EUR rallied accordingly from 1.3500 to 1.3650, in the process breaking upwards through its own 200 day m.a. at 1.3465. It was a similar story for USD/JPY, falling from 99.50 to 98.50. AUD/USD followed the script, accelerating from 0.7550 to 0.7700. A weekend McCrann article was not market related. NZD/USD was a tad less bullish, from 0.5950 to just above 0.6050, helping AUD/NZD firm slightly from 1.2700 to 1.2780. US non-farm payrolls down 539k in April. Although payroll jobs' 539k fall in April was the smallest contraction in employment for six months - in line with the less weak business surveys and slightly slower pace of initial jobless claims recently, most of the detail in the report remained consistent with a chronically weak labour market. Once again, revisions to the prior two months left them looking weaker (this month, by 66k fairly evenly spread between Feb and Mar). Private payrolls posted their sixth straight monthly loss of over 600k; the jobless rate surged another 0.4 pts to 8.9%, its highest since 1983; hours worked fell a steep 0.6% in April (in March they were flat); and hourly earnings grew by less than 0.1%. These last two factors will tend to weigh against household spending power this month. US wholesale inventories down 1.6% in March. The wholesale inventories decline in March was very steep and mostly volume driven, but as the Commerce Dept had already assumed a weak number, there are no obvious implications for revisions to the Q1 GDP report. The German factory sector did not shrink any further in March, (i.e. industrial production was flat) and with orders picking up that month, we might be starting to see a base form in this sector. Still, with IP down by a fifth compared to a year ago, that is still a very weak picture. UK producer prices subdued in April. Input prices fell last month and the core output measure continued to drift lower. Canadian employment posted its first rise for six months, of 36k, most unexpectedly. The gain was entirely due to full-time self employed service sector workers. With the economy now believed to be in a deepening recession - as evidenced by the renewed steep fall in housing starts, April's jobs growth is likely to be reversed next month. Outlook Global optimism remains intact, supporting the NZD. Today should see support at 0.5990, while a break of 0.6055 points to 0.6160. Today's card spending report for April will add insight to consumer sentiment. Events Today Date Country Release Last Forecast 11 May NZ Apr Electronic Card Transactions –0.5% – Apr REINZ House Prices %yr –4.0% – Aus Apr NAB Business Confidence –16.8 – US Fedspeak: Bernanke Jpn Apr Machinery Tools Orders %yr –85.2% – Can Mar New House Prices –0.7% –0.5% 12 May NZ Apr Food Prices 0.50% – Aus Mar Housing Finance 0.40% 5.50% Federal Budget, 2009/10 AUDbn – –55.0 US Mar Trade Balance $bn –26.0 –28.0 May IBD/TIPP Economic Optimism 49.1 51 Apr Federal Budget $bn 159 –20 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.