Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jun 18 09 01:24 GMT |

News And Views Risk soggy, but dollar sold. US equities were mixed, tech shares doing well (Nasdaq up 1.0%) but Standard & Poor's downgrades of 22 US banks hurting the bank index (3.8% lower), and the S&P500 closed unchanged. Fedex issued a gloomy outlook to late 2009, wilting some of the green shoots. US CPI was lower than expected, helping 10yr US treasuries rally around 10bp early on, the equities revival later pushing them down to close unchanged. Norway's central bank cut the policy deposit rate 25bp to 1.25%. Credit spreads were wider, Citibank's +100bp over the past two days notable. The dollar index fell around 0.6%. EUR slumped to 1.3825 early London on the weak equities opening, but then followed the reversal to reach 1.3985. GBP's parabola bottomed at 1.6220 and peaked recently at 1.6450, supporting factors including UK unemployment rising by less than consensus, and cautiously optimistic BoE minutes. The stronger yen trend continued, 96.70 to 95.50, Japanese officials raising their assessment of the economy for the second month. AUD copied the patterns of the other majors, 0.7995 to 0.7850 to 0.7985. NZD reached a low of 0.6245 before peaking an hour ago at 0.6370, the weak equities close dragging it back to 0.6340. AUD/NZD made a recent low at 1.2510. US CPI up 0.1% in May. The CPI was constrained to a 0.1% headline gain, despite a 3.1% jump in gasoline prices, by a 0.2% fall in food prices and generally subdued price gains elsewhere (hence the core rate rounding down to 0.1%). The annual CPI fell to -1.3% yr, its lowest since 1950, though the core rate was in the middle of the 1.7%-1.9% yr range that has prevailed since late last year. US current account deficit narrowed from $155bn to $102bn in Q1, much wider than expected, due to the Q4 deficit being revised up by $22bn. The known narrower goods trade deficit was partly offset by a smaller than expected investment income surplus. The Q1 deficit was the narrowest since 2001, and represents a halving of the deficit compared to 2006 and 2007, when it averaged about $200bn per quarter. Eurozone trade deficit €0.3bn in April, its narrowest since April last year, reflecting a 1.3% fall in exports, more than offset by 2.7% slump in imports. That suggests a positive contribution to the economy from net exports at the start of Q2, even though exports' 27.0% yr slump is indicative of the crisis facing the region's exporters. The Bank of England minutes to the June policy meeting showed a unanimous 9:0 vote to keep the bank rate unchanged at 0.50% and continue the quantitative easing program begun in March, and expanded by £25bn in May. The minutes had a cautiously optimistic tone: 'the news over the past month had been mostly encouraging'. On the data front, unemployment rose 39k in May, its smallest rise since July last year. Canadian wholesale sales fell 0.6% in April, their seventh consecutive monthly decline, although in the latest three months, the pace of contraction diminished significantly. Similarly, the leading index fell 0.1% in May, its ninth consecutive fall, but the trend rate of decline has pulled back sharply. These outcomes point to a economy that is still receding, but showing signs of bottoming out. Outlook The NZD has been stuck in a 0.6240 to 0.6400 range for the past three days, and there's nothing on today's horizon to suggest a breakout. Longer term, our view remains negative NZD, the initial target 0.6150. Events Today Country Release Last Forecast Aus Q2 WBC-ACCI Survey of Industrial Trends 34.0 – May Merchandise Imports AUDbn 16.2 – RBA Monthly Bulletin US Initial Jobless Claims w/e 13/6 601k 590k May Leading Index 1.00% 1.00% June Philadelphia Fed Index –22.6 –15.0 UK May Retail Sales Volumes 0.90% –0.3% May Public Sector Net Borrowing £bn 8.5 19.3 May Money Supply M4 %yr 17.40% 17.30% Jun CBI Industrial Trends Survey –56 – Can May CPI %yr 0.40% –0.2% May CPI BoC Core Ex 8 %yr 1.80% 1.60% 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.