Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jun 19 09 01:31 GMT |

News And Views Data surprises. US data from the Philadelphia Fed and the leading index positively surprised the markets, the S&P500 jumping at the open, and closing up 0.8%. Commodities remained unstirred, however, the CRB index -0.1% on the day. US 10yr treasuries clearly responded, rising 16bp to 3.84%, a record supply next week also contributing. The US dollar, which had been stuck in a 0.5% sideways range during the London session, lurched upwards a couple of hours ago to be +0.5% on the day. It seems a move by the British Bankers Association to expand the Libor fixing panel was behind the lurch, the reasoning being the new panel members are expected to be of lower credit quality, which would raise the Libor fixing rate; the market responded by pushing swap rates higher, in turn supporting the dollar. EUR was contained in a sideways 1.3900 to 1.4000 range before the Libor news, falling to 1.3870 and settling just below 1.3900. GBP saw a volatile range, falling from 1.6460 to 1.6190 during the London morning after a disappointing retail sales report, before recovering to 1.6340. The CHF weakened against the USD from 1.0760 to 1.0900 after the Swiss central bank intervened verbally and supposedly via buying EUR/ CHF. The Canadian central bank repeated its pledge to hold rates until June 2010, and said the CAD was being closely watched, with no obvious effect on the currency. AUD ranged between 0.7925 and 0.8005 until the London afternoon, when it broke higher to 0.8050, settling at around 0.8000. NZD was similarly subdued until an afternoon breakout to 0.6445, settling at 0.6400. AUD/NZD continued its week-long grind lower, to a 1.2480 to 1.2540 range. US Philly Fed jumps to -2.2 in June. The Philly Fed factory survey jumped 20 points this month, and although the headline remained slightly negative, in the detail shipments turned slightly positive. Orders also posted a dramatic improvement although jobs were only marginally less weak. Whilst an undeniably up-beat report, we would note that the NY Fed survey did exactly this a month ago in May, before slipping back in June. Also, the last time the Philly Fed jumped 20+ points was in September last year; in October 2008 it fell 40 points (in the aftermath of the Lehman's collapse). US leading index posted back to back rises of over 1.0% in April-May. Going back 40 years, we cannot find a stronger two month performance. The May gains were driven mainly by the supplier deliveries, interest rate spread, equities, money supply and consumer expectations components. Coupled with the Philly Fed survey, this result has reignited talk of US economic recovery. US initial jobless claims hovered just above 600k for the second week running last week, but the real news was that in the prior week, continuing claims fell a sizeable 148k, their first decline since January this year. Clarification - continuing claims have on occasion fallen this year, but the decline has subsequently been revised away. So before we add this result to the growing swag of evidence pointing to less deterioration in the labour market, we will need to wait for next week's figures at the very least. UK retail sales down 0.6% in May, pay-back for apparent April strength which was due to distortions caused by the timing of Easter and warm weather. May's annual pace of retail volume decline matches February's low point, and those two months represent the slowest annual sales pace since 1992. Also, the June CBI industrial survey only posted the mildest of improvements. Along with huge public sector borrowing numbers in May and deceleration in money supply growth, this added to the weak tone of the UK data. Canadian headline CPI dipped to just 0.1% yr in May, its lowest since 1994. However there was some upward on the core rate. As last year's late cycle gasoline price rises drop out of the annual calculation, and this year's CAD appreciation impacts on prices, the CPI should continue to moderate. Outlook The NZD's short term strength could take it to 0.6470 today, which doesn't damage our medium-term view of a multi-month decline to around 0.5500. US markets tonight could be volatile, given the quadruple witching day, where several important futures and options contracts expire simultaneously. Next week's data calendar is busy, including a number of heavyweight releases such as GDP and the current account, and increased volatility in the NZD is likely. Events Today Date Country Release Last Forecast 19-Jun Jpn Bank of Japan Minutes (May) Ger May Producer Prices %yr –2.7% –3.0% Can Apr Retail Sales 0.30% 0.10% 22-Jun NZ May External Migration 9,100 9,800 May Credit Card Transactions 2.3% – Aus May New Motor Vehicle Sales 0.9% – Jpn Q2 BSI Large Manufacturing –66.0 – Apr Tertiary Industry Index –4.0% 2.30% Ger Jun IFO Business Climate 84.2 85 UK Jun Rightmove House Prices %yr –6.2% – 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.