• Home ::
• Fundamental ::
• Market View ::
• Morning Report

• Send
• Print
• Add To
• Rss

Morning Report

The US dollar fell for a second day against the other major currencies

Thu, Mar 27 2008, 05:54 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

News and views

The US dollar fell for a second day against the other major currencies, though the moves were probably exaggerated by some large flows going through. A Middle East name was believed to have bought a large amount of euro, triggering stop-loss buying as it moved through 1.57, then did the same in the yen, sending USD/JPY firmly below 100. Weak US economic data and contrasting comments by central bankers supported the US dollar’s move lower. The NZD and AUD initially benefited from the weaker USD, but later gave back much of these gains to end the day little changed.

US durables goods orders declined by 1.7% in February. Aircraft orders were not as strong as expected, while core orders (i.e. ex defence and aircraft) fell 2.6% in the month. Moreover, shipments of core capital goods declined by 2.1% after a 0.4% fall in January. That suggests business equipment investment may have contracted in Q1. The detailed data showed a remarkably large 13.3% drop in machinery equipment orders. This could be partly an aberration, with the prospect of some reversal in March. Even so, we note that core capital goods have trended lower since September, with orders down 1.4% and shipments 2.0% lower over this period.

US new home sales continue to trend lower, falling 1.8% in February. However, the declines in December and January were scaled back a little, such that January sales were 2.2% higher than previously reported. The housing overhang remains substantial, with the supply of unsold stock holding at 9.8 months. Median prices actually rose in February, a move that is most likely just noise in the data. The fundamentals continue to place downward pressure on prices.

The German Ifo business confidence index unexpectedly rose for a third month in March, edging 0.7pts higher to 104.8. Current conditions have improved since December, up 3.4pts. Expectations have been resilient since December, but are down 4.8pts from last March. Notably, strong demand from emerging economies is supporting conditions for now. Euroland industrial orders also showed strength early in 2008, rebounding 2.0% in January after a 3.6% decline in December. Orders for machinery & equipment and for transport equipment bounced back in the month. Total orders are up 7.3% on a yearago.

ECB chief Trichet noted concern about the euro’s rise, but otherwise indicated that inflation is still the number one priority, and even went as far as urging people to be more confident about the economic outlook. BoE Governor King told Parliament that the MPC is more predisposed to cutting rates, but highlighted the balancing act the BoE faces between financial stability and inflation. In contrast, Dallas Fed Fisher, who dissented in favour of a smaller rate cut at the 18 March review, noted that the US is in for a long period of slow growth.

Outlook

With US officials having already done a lot of ‘housekeeping’ in recent weeks, traders are starting to cast their eyes towards other parts of the world that may be vulnerable – in particular, those countries with persistent current account deficits, as offshore funding becomes harder to secure. In itself, that doesn’t suggest a significant risk around today’s current account figures for Q4 – we expect the deficit to improve from 8.3% to 8.0% of GDP. However, we suspect that the market will be increasingly inclined to sell into any rallies in the likes of NZD, AUD or GBP.

• Download Full Morning Report

Published on  Thu, Mar 27 2008, 05:57 GMT

Archive

• The New Zealand dollar benefited from a revival in investor risk appetite
  Published On Tue, May 13 2008, 06:00 GMT
• The New Zealand dollar continued to fall against all of the major currencies
  Published On Mon, May 12 2008, 06:42 GMT
• The New Zealand dollar fell sharply yesterday
  Published On Fri, May 9 2008, 05:58 GMT
• The New Zealand dollar was consistently sold overnight
  Published On Thu, May 8 2008, 05:54 GMT
• The New Zealand dollar was well bid overnight
  Published On Wed, May 7 2008, 06:07 GMT

[ View All ]

• More Reports from this Author
• More Reports from this Contributor

Westpac Institutional Bank  | ABN 33 007 457 14
http://www.westpac.co.nz | natalie_denne@westpac.co.nz