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Morning Report

The offshore FX session was very quiet Friday night

Mon, Jul 21 2008, 07:29 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

News and views

The offshore FX session was very quiet Friday night. The main news was equity related – a better than expected earnings report from Citigroup (although still a loss, with $8bn in writedowns) saw Dow futures up from a low of -100pts to +50pts pre market open. This was largely given back in the first half hour of cash trading but eventually the Dow closed higher. USD made reasonable gains on some crosses from this but price action was not as striking as in bond markets, where Treasuries yields rose steeply. The New Zealand dollar found little inspiration from this, the pair easing from around 0.7640 to close NY at 0.7612.

The Australian dollar was also rather underwhelmed, trading a 0.9702/0.9739 range, perhaps softened slightly at the margin by falling commodity prices.

USD/JPY was more directional than most pairs, pressing firmly higher from 106.35 to 106.95, boosted by the third consecutive day of gains on Wall Street and talk of hedge funds being stopped out of short positions.

EUR/USD dipped on the Citi earnings but buyers emerged ahead of 1.5800. “Sources” stories revealed some hawkish ECB chat, helping the euro.

No US data to report.

Bank of Japan minutes. The minutes of the meeting of June 12 and 13 indicate essentially symmetric policy risks adding up to stable rates for quite some time. The Board is convinced that the economy will slow but not contract, and that prices will rise, but not by a damaging amount.

Canadian leading index flat in June. The index’s recovery from a very weak Q1 in April and May lost momentum last month, mainly due to renewed weakness in the factory and housing components. Separately, wholesales sales grew by 1.6% in May, with about half of that gain due to higher prices.

Euroland trade deficit €1.5bn in May. Higher oil prices have wiped out the trade surplus of the last couple of years. In Germany, producer prices accelerated to 6.7% yr in June, the fastest pace since the early 1980s, again due to energy prices.

UK budget blowout in prospect. Public sector net borrowing was £3bn higher in June this year than last year, so after just three months of the 2008 FY, borrowing is up almost £10bn or 66% on last year. Even before the figures were reported, the press was speculating that the government would break its own fiscal rules in the pre-budget report due later this year, to allow further borrowing, considered preferable to raising taxes as the economy slips closer to recession. Other data showed a sharp increase in bank lending last month, as other forms of finance dried up.

Outlook

We continue to like NZD/USD lower multi week especially on a TWI basis. However, last week’s stronger than expected CPI release should hold off further rate cut expectations for now, hence the NZD is likely to range trade ahead of this week’s RBNZ meeting.

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Published on  Mon, Jul 21 2008, 07:33 GMT

Archive

• US consumer confidence rose to 56.9 in Aug
  Published On Wed, Aug 27 2008, 10:18 GMT
• USD traded softer to start the week as US stock prices tumbled
  Published On Tue, Aug 26 2008, 08:19 GMT
• USD/JPY ground up from 109.00 to flicker above 110.00 in late NY
  Published On Mon, Aug 25 2008, 06:48 GMT
• US Philly Fed index improved to –12.7 in Aug
  Published On Fri, Aug 22 2008, 05:55 GMT
• Japanese June all-industry activity index fell 0.9%
  Published On Thu, Aug 21 2008, 05:58 GMT

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