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USD/JPY marched firmly higher

Thu, Aug 7 2008, 06:39 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

News and views

The US dollar enjoyed broad gains in London/NY despite whippy price action on oil and equities, though both were dollar-positive by late NY. Traders noted that USD Index has pushed above its 200 day moving average. Commodities were mixed but overall a little softer, with the CRB Index falling to fresh lows since 7 April. The New Zealand dollar followed the broad trend by slipping vs USD, from a fleeting high of 0.7263 in London to bump around 0.7180 in late NY.

The Australian dollar’s attempt to recapture 0.9200 succeeded only very briefly in London (high 0.9206) before AUD/USD sank amid the general USD rally, to as low as 0.9065 (last seen 2 April) in the Ldn/NY overlap.

USD/JPY marched firmly higher, barely pausing as it added well over one yen to trade above 109.60, last seen on 11 January, as VIX slipped below 20 and pessimism grew over Japan’s economy.

EUR/USD came under pressure ahead of what some speculate could be a not overly hawkish ECB press conference Thursday. The euro retreated from above 1.5500 to the 1.5400/15 area.

No US data to report.

Japan’s leading index points to further deceleration. The leading index fell to 91.2 in June from 92.9 in May. The coincident index fell to 101.7 from 103.3. Neither measure makes particularly good reading. The vast majority of forecasters expect Q2 GDP to contract, and the early portents for Q3 are not especially hopeful.

German factory orders fell 2.9% in June. This was the seventh straight monthly decline, leaving orders down 6.1% compared to June last year, and adding to the weight of evidence pointing to a significant slowdown in the German/Euroland economy later in H2 2008.

UK shop prices jump 3.2% yr in July. This compares to a 2.5% gain in June, and is an early indication that next week’s CPI report for July will show a further sharp acceleration. Also, consumer confidence plunged to a fresh low in July on the Nationwide index.

Canadian Ivey PMI falls from 69.6 to 65.5 in July. This index is not seasonally adjusted and it typically slows in July due to summer shutdowns. That said, the relatively modest fall last month is suggestive of some resilience in the economy.

Outlook

We continue to like NZD lower multi week especially on a TWI basis. Our view is supported by RBNZ governor Bollard’s reiteration this week that there is scope for further easing and NZ Treasury’s apparent expectation of negative Q2 GDP though obviously Q2 employment data today will be closely watched.

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Published on  Thu, Aug 7 2008, 06:44 GMT