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The Australian dollar was also driven by USD direction

Tue, Jul 15 2008, 06:06 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

News and views

The overnight session was driven by the continued ebbs and flows of the US equity market. Fannie Mae and Freddie Mac were up a respective 22% and 27% before the cash market opened, following news from the weekend. However, on the cash market open Dow futures gave back what had been around a +100pt opening in short order. This was all enough to see the USD better bid during the morning session before it gave back ground later on (with commodities and Treasuries also driven by equity news). For the New Zealand dollar this saw the pair trade down to a low of 0.7600 in the London morning before heading up to a high of 0.7648 in the NY afternoon.

The Australian dollar was also driven by USD direction, the pair printing a fresh post float high of 0.9736 in NY trade as the greenback softened yet again.

USD/JPY traded lower as USD sentiment turned, backing off 106.80 and heading to the 106.15 area where it had started the global week in Wellington.

EUR/USD tracked down to around 1.5850 in London/NY overlap trade before pushing to 1.5930 or so in NY and then gyrated with an eye on equities and oil, neither of which ended up telling a powerful story.

No US data to report.

Euroland industrial production falls 1.9% in May. Consistent with national data released earlier this month, European factory output fell at its fastest monthly pace since the late 1980s, adding to the growing body of evidence that suggests economic growth is slowing. This should help prevent the European Central Bank from tightening monetary policy further.

UK producer prices surge again in June. Input prices jumped 30% yr, output prices were up 10% yr and even core output prices were up 6.4% yr, the highest since the 1980s. This outcome will add to Bank of England concerns that higher commodity prices might feed through to broader inflationary pressures. However BoE policy committee member Kate Barker was reported saying that the Bank was also concerned about the risk the economy might slow too much, causing inflation to undershoot the target, if policy were kept too tight.

Outlook

While we continue to like NZD/USD lower multi week, today’s CPI release is likely to dominate near term direction. On that, our economists are calling for an above consensus print, which would likely result in the paring back of July rate cut expectations.

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Published on  Tue, Jul 15 2008, 06:10 GMT

Archive

• Panic continued to grip global markets in London/NY trade
  Published On Tue, Oct 7 2008, 14:07 GMT
• The US dollar see-sawed its way through a poor employment report
  Published On Mon, Oct 6 2008, 08:57 GMT
• Risky assets were hit hard again overnight
  Published On Fri, Oct 3 2008, 05:54 GMT
• Global markets were volatile but without any real direction overnight
  Published On Thu, Oct 2 2008, 06:13 GMT
• Rumours continued to swirl in financial markets in a violent and rapid fashion
  Published On Wed, Oct 1 2008, 06:15 GMT

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