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USD gained some ground Friday night on better than expected US data

Mon, Jul 28 2008, 06:03 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

News and views

USD gained some ground Friday night on better than expected US data (durable goods orders, new home sales and Uni of Michigan consumer sentiment all beat consensus) but the dollar’s gains proved modest overall as equity sentiment was hurt by ratings agency S&P’s threat to downgrade Fannie Mae and Freddie Mac. Oil lent some support to USD – NYMEX crude oil slumped about $3/bbl in short order and closed at $123.26/ bbl, its lowest close since 4 June. The New Zealand dollar had hit a high of 0.7469 in the London morning but the firmer US data set NZD/USD into a steady decline to the 0.7420 area, which proved sticky in New York.

The Australian dollar traded a 0.9548 - 0.9609 range in London which got tighter after London finished the week, ultimately finishing around 0.9560.

EUR/USD found ready buyers in London, pushing about 1.5750 but retreated on the reasonable US economic data and the resumption of oil price declines. This left the euro quite flat, near 1.5700.

USD/JPY showed clearer direction than most, ramping up steadily from London morning lows under 106.60 to 107.70 after the US data, but with the Dow fading to an underwhelming 21pt gain, 108.00 proved too tough a nut to crack.

US durable goods increased 0.8% in June – stronger than market expectations of a –0.3% fall and the first monthly gain since July 2007. May orders were also revised higher to 0.1%. Orders for non-defense capital goods excluding aircraft rose 1.4% following a 0.1% decline in May, while shipments for the same items increased 0.7%. The result has seen some forecasters lift their estimates for Q2 GDP.

US new home sales were stronger than anticipated in June, declining just 0.6% to a 530,000 annualised pace. This followed a revised 1.7% decline in May (previously -2.5%). The market expected a fall of 1.8% in the month.

The final read on the July US University of Michigan consumer confidence survey came in at 61.2, above expectations and stronger than the preliminary reading of 56.6 taken earlier in July. The index was at 56.4 in June. It seems the tax rebates may be giving consumers a bit of a lift, albeit still at low levels.

Japanese consumer price inflation accelerated again. The headline nationwide CPI rose 2.0%yr in June, from 1.3% in May. Ex fresh food and energy, nationwide prices rose 0.1%yr, up from -0.1%. Ex fresh food came in at 1.9%. The Tokyo series for July came in at 1.6%, up from 1.5%. Ex fresh food and energy, Tokyo prices rose 0.3%yr in July, unchanged from May. Ex fresh food came in at 1.6%.

Japanese June corporate services price inflation heading higher on international transport costs. The headline CSPI rose 0.5% in June, to be 1.2% above year ago levels. That compares to domestic corporate goods prices, which rose 0.8% in June to be up 5.6%yr. The main source of services price inflation is the freight industry. Ocean-going freight costs are up 23.3%yr; ship chartering services are up 24.4%yr and international air freight costs rose 5.0% in the month and 7.1%yr.

Euroland money supply growth slowed by more than anticipated in June. M3 growth increased 9.5% compared to June last year – the weakest pace of growth since November 2006. Market expectations were for an increase of 10.3% yr.

UK GDP rose 0.2% in the June quarter, in line with market expectations, and the slowest pace of growth since 2001. GDP grew 1.6% compared to a year ago. The main culprits for the weak growth were a 0.4% decline in manufacturing and a 0.7% decline in construction (the first contraction in more than two years).

Outlook

We continue to like NZD/USD lower multi week especially on a TWI basis. The RBNZ’s rate cut and dovish statement last week only reinforced our confidence in this view.

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Published on  Mon, Jul 28 2008, 06:07 GMT