Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jun 10 09 01:43 GMT |

News And Views Dollar slips. The S&P500 hovered around its flat open, closing up 0.4%. The US Treasury said 10 big banks will repay about $68 billion to the government, but the market was undecided whether that was positive (banks in good shape) or negative (banks have less to lend) for the economy. The US dollar index lost around 1.3%, which then helped metals - copper gaining 4.6% and nickel 6.2%. Treasury bond supply concerns were absent at a 3yr auction, foreign (e.g. central bank) bidders more noticeable. Of course the real test will be the 10yr and 30yr auctions this week. The 2yr yield rallied by 10bp while 10yrs did 2bp, in a partreversal of the rate-hike-expectations prevailing during the past few days. EUR bounced from 1.3855 to 1.4100, a US investment bank's long-EUR trade recommendation coinciding with a moderately positive tone in risk sentiment last night. GBP rallied from around 1.6000 to 1.6360 in the standout performance of the evening, helped by talk of inflows related to the Barclay Global sale, improving housing data, and receding political volatility. USD was weaker against even the yen, falling from 98.50 to 97.25. AUD went for the ride with the other majors, rallying from 0.7900 (noon London) to 0.8045 (late NY), opening in NZ at 0.8020. NZD copied the action, gaining a cent to the current 0.6270. AUD/NZD marched higher, from 1.2700 to 1.2800. US wholesale inventories down 1.4% in April. Another sharp rundown in stocks at the start of Q2, following a downward revision to March from -1.6% to -1.8%. No evidence at this early stage of a positive contribution to Q2 GDP growth from inventory accumulation. US IBD-TIPP economic optimism up from 48.6 to 50.8 in June. This first read on consumer confidence this month shows a further modest gain, driven by all three of the economic outlook, personal finances and federal policies. Japan April leading composite index rose 1.0, extending the 2.1 March rebound from prolonged sharp drop that saw it decline 9 of the 10 previous month. The coincident composite index rose 1.0 in April, the first increase in 11 month. The April indices reflect recent hints of a bottoming out in the sharp contraction in the manufacturing sector. German industrial production down 1.9% in April. This weak monthly outcome pulled annual growth down from -20.2% yr to -21.6% yr. UK house prices update. The May RICS (surveyor) index rose to an 18 month high, with just 44.1% of respondents reporting lower house prices. The DCLG (government) house price index improved from -13.6% yr to -13.0% yr. Both add to the body of evidence suggesting the UK housing market may be stabilising. UK BRC retail sales monitor very soft. May same store sales growth dropped from 4.6% yr to -0.8% yr, confirming that April's strength was mostly Easter and hot weather driven. Outlook We have a negative NZD bias for a 2-month outlook, having expressed that yesterday via the purchase of a NZD put (USD call) option. The motivation for using an option was to remove the daily noise from a medium-term structural trade. We have a target of around 0.55 in mind, but expect the path will be choppy. Today, the 0.6300 level should cap the action, and a move to 0.6150 is our preferred scenario. Watch the terms of trade report this morning - we think it could be much worse than the -3.8% q/q consensus. Events Today Country Release Last Forecast NZ Q1 Terms of Trade -0.9% -6.6% May Electronic Card Transactions 0.70% - Aus Jun Westpac-MI Consumer Sentiment 88.8 - Apr Housing Finance 4.90% -1.0% US Apr Trade Balance $bn -27.6 -29.0 May Federal Budget Balance $bn -166 -181 Fed Beige Book Apr Current Account €bn Fedspeak: Governor Duke Jpn Apr Machinery Orders -1.3% -0.7% May Corp. Goods Prices %yr -0.4% -0.3% UK Apr Visible Trade Balance £bn -6.6 -6.4 Apr Industrial Production -0.6% 0.20% Can Apr Trade Balance C$bn 1.1 1.1 Apr New House Prices -0.5% -0.5% 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.