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US officials seek to reassure on risk

Wed, Aug 22 2007, 06:55 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

New Zealand dollar

NZD consolidates within a one cent range. The NZD opened near its highs yesterday and, after failing to make any further gains, soon found itself under pressure as it succumbed to selling from importers who were happy to see anything still above 0.7000. The selling gained momentum when NZD/JPY selling re-emerged, however good buying interest was found in the low 0.6900’s, leaving the currency trading within a one cent range for the day, a narrow range by recent comparisons. During the day data was released showing electronic card transactions fell 0.1% in July; although the data itself isn’t significant it is often considered an indicator for retails sales spending behaviour. Elsewhere, Finance Minister Michael Cullen had another crack at the currency, suggesting the NZD is still trading above its normal range in the economic cycle. Overnight saw the NZD also trade within one cent range as it failed to find any directional bias.

Australian dollar

AUD treads water as it awaits directional bias. Nervous investor selling saw the AUD under early pressure yesterday only to recover later in the day when regional stock markets recorded recovery rallies. The currency was unable to recover back to its opening level however, and ended the day quietly settling into a range in the absence of any other market moving factors. In the only data released on the day, motor vehicles sales rose 0.6% in July, not enough to inspire the market in either direction. Overnight trading saw further consolidation for the AUD as it opens this morning only just above 0.8000.

Major currencies

US officials seek to reassure on risk. US officials sought to reassure investors yesterday despite acknowledging that current liquidity difficulties would take some time to play out. Treasury Secretary Paulson commented that global economies remain strong and that liquidity would return to normal once investors reassessed risk and Fed Chairman Ben Bernanke signalled a willingness to cut the Fed Funds rate, if necessary. Despite this however, the markets remain risk averse. JPY softened from an early high of 115.24 to post an intraday low of 114.01, while the euro slipped from 1.3521 to a low of 1.3457. Sterling, meanwhile also failed to hold early gains above 1.99, dipping to an intraday low of 1.9743.

Economic data and events

US Fedspeak: Lacker (Richmond Fed) stated that “financial market volatility, in and of itself, does not require a change in the target federal funds rate.” He also said that there was only a “small” chance that consumer spending would be hurt. Lacker is known as a hawkish member of the FOMC; however, he is not a voter this year.
Eur Jun trade balance was €7.8bn (nsa) from €1.7bn in May. While part of the increase was seasonal, the result was stronger than expected by the market. On a s.a. basis, exports rose 1.7% over the month, while imports fell 0.3%.
Ger Aug ZEW economic sentiment fell to –6.9% from +10.4% last month as institutional investors expressed their concern about the global financial market ructions and weak Q2 GDP.
Can Jul consumer price index rose 2.2%yr, as expected. Owner occupied housing made a strong positive contribution, while petrol and computer prices fell. The CPI BoC core measure slowed to 2.3%yr from 2.5%yr in June.
Can Jul leading index rose to 0.4%, stronger than expected. Household spending was the main impetus, while manufacturing continued to provide a drag.
Can Jun retail sales fell 0.9%, in line with our expectations but weaker than the market was anticipating. Sales were dragged down by the automotive sector, with ex-auto sales falling only 0.3%.

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Published on  Wed, Aug 22 2007, 08:39 GMT