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Japanese yen rockets higher

Fri, Aug 17 2007, 11:07 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

New Zealand dollar

Biggest one day fall in 21 years. Yesterday the NZD had its biggest one day fall in 21 years. It opened at 0.7175 and steadily headed lower as hedge funds, model accounts and carry trades all exited long NZD positions. With the bias clearly to the downside and a market reluctant to pick a bottom, fresh lows were continuously printed until it reached 0.6819 before bouncing very quickly back up to 0.6900 late in the afternoon. The move higher was short lived as the offshore market entered the fray and piled back into the sell side taking the NZD down to 0.6715 overnight. It opens this morning higher after the Dow Jones Index staged a recovery late in New York.

Australian dollar

Carry trade day massacre. The AUD fell over 3% yesterday to its lowest level in nearly five months against the US dollar as investors continued reducing risk. Having opened around 0.8220 it quickly tumbled through key support levels to post an intra day low of 0.8000. Overnight was more of the same with the currency pair falling close to another two cents to 0.7819. It has since recovered some ground to open this morning back above 0.7900.

Major currencies

Japanese yen rockets higher. The yen soared against all major currencies on Thursday in a day that can only be described as chaotic. USD/JPY had its largest single day drop in nine years to 112.01 and EUR/JPY fell to sub 150 for the first time since Nov 2006 as carry trades were exited in a major hurry. The USD managed to rally against the euro, Sterling and Canadian dollar, a continuation of US strength this week as sub prime mortgage problems filter through Europe and Canada. Further volatility is expected as more information about the credit crisis comes to the markets.

Economic data and events

US Philly Fed index falls from 9.2 to 0.0 in Aug. The Philly Fed index fell back to zero this month, in contrast to the third straight 25+ reading from the neighbouring manufacturers in the Fed’s New York survey published yesterday. However the Philly detail was not as soft as the business activity headline (which is a separate question and not a composite of the detail), with the average of the orders, shipments and jobs components actually rising from 12 in July to 14 in August.
US housing starts down 6%, permits down 3% in Aug. More housing sector weakness - starts and permits both fell to their lowest since 1997. The breakdown showed multiple and single family house starts and permits declining. On a regional basis, permits were down across the board although in the midwest starts managed a 2.6% gain (starts fell everywhere else). The only positive in the report, if it is that, is that starts fell so much more than permits in July such that their annualised pace of 1381k is now more or less aligned with permits at 1373k. So unlike last month, after the June report, there is not a clear signal here of further sharp declines in starts in coming months (though we still can’t rule that out!).
US initial claims up 6k to 322k. Initial jobless claims show a slight rise (or softening in the labour market) in the weeks leading up to the payrolls survey, which is underway now (in the week of the 12th). Continuing claims also appear to be edging a little higher. Nothing dramatic in either series, but if there is a trend, it is a softer one.
Euroland inflation was confirmed at 1.8% yr in July and the core rate was 1.9% yr for the sixth month running.
UK retailing surprised with a solid 0.7% gain in July on top of an upwardly revised June (from 0.2% to 0.4%). There was no discernible downward drag from the extensive flooding across north, west and central England last month; if anything, reconstruction seems to have boosted the figures (household goods sales were up a cracking 3.7% on top of solid gains in May and June). These figures imply a solid start to Q3 consumer spending.

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Published on  Fri, Aug 17 2007, 11:12 GMT