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EUR/USD rallied on headlines from ECB's Liebscher

Tue, Aug 12 2008, 06:21 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

News and views

After a brief setback on hawkish ECB comments in London, USD quickly resumed its upwards march. Again, this came despite an empty US data calendar as USD enjoys “least worst” status. Commodities came under heavy pressure once more, with gold price action catching the eye: spot gold drifted down $5 to $855/oz in NY then suddenly collapsed to around $820/ oz, a 20% fall from the March highs and its weakest point since Dec07. The S&P GSCI commodity index officially dropped into bear territory, with oil prices also weighing. The New Zealand dollar benefited from USD’s dip in London, jumping 75 pips to a high of 0.7086 but then shed a full cent by late NY, bumping around 0.6980, fresh lows since Sep07.

The Australian dollar squeezed up 90 pips to a 0.8952 high in the London morning but then resumed its increasingly familiar sell-off, to 0.8815 by late NY.

EUR/USD rallied on headlines from ECB’s Liebscher. He described inflation as “worrying” and said slower growth was only a “limited surprise”. This helped the pair to 1.5084 but it spent the rest of the overnight session under pressure, to near 1.4900.

USD/JPY bounced from a 109.55 low to touch 110.40 as US equities swung from negative to positive but again failed to make headway from there, easing to 110.15.

No US data to report.

German wholesale prices up 9.9% yr in July, the highest this decade, although recent developments in commodity markets should soon see the pace of acceleration moderate somewhat.

UK producer prices may be peaking. July data showed the first monthly decline (–0.6%) in input prices since August last year. Annual growth in core output prices was steady at 6.7% yr, after jumping sharply from 3.2% yr in February. With oil and some food prices falling in recent weeks, the August PPI report might more clearly show some softening in price pressures. But that won’t help the July CPI, expected (by us) to jump from 3.8% yr to 4.3% yr (out tonight). Other UK data included a near £300mn widening in the visible trade deficit to £7.7bn in June.

Canadian housing cooling. Housing starts fell 14% in July to their lowest level for the year so far, although bad weather in Ontario probably dampened the picture somewhat. In June, new house prices rose 0.1% to be up just 3.5% over the year – the slowest annual growth rate since 2002.

Outlook

Given New Zealand’s better than expected Q2 employment data last week, we cut half our short NZD TWI position and suspect the greater gains short term could be through short NZD/USD.

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Published on  Tue, Aug 12 2008, 06:27 GMT