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EUR/USD was ultimately little changed, sitting around 1.4920 in late New York trade

Wed, Aug 13 2008, 05:49 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

News and views

USD/majors saw some profit-taking on shorts, producing whippy price action and by late NY, a slightly softer dollar overall, with yields lower and equities weak. Oil contributed to the lack of strong direction, seesawing anywhere from $112.50/bbl to over $115.50 on confusion over whether hostilities have actually ceased between Georgia and Russia. Dallas Fed president Fisher said he expected near “zero growth” in H2 and a “sustained period of anaemia” – not that this has stopped him voting for higher interest rates all year. Minneapolis Fed president Stern said the oil price pullback “improves the inflation outlook.” The New Zealand dollar dipped to a 0.6931 low, rebounded to over 0.7000 then softened to the 0.6975 area.

The Australian dollar was punished in the London morning as far as a low of 0.8703 but then bounced sharply to flicker above 0.8800 before easing back to 0.8750-70 for much of NY trade.

EUR/USD was ultimately little changed, sitting around 1.4920 in late New York trade.

USD/JPY was more directional than most, slipping about 90 pips in the NY session to 109.35, with reports of Japanese retail selling.

US trade deficit narrows to $56.8bn in June. The trade deficit fell unexpectedly for the second month running in June despite surging oil prices which had been expected to boost import values. In fact, non-oil imports fell 1.4%, offsetting some of the $3.3bn increase in oil imports and constraining the overall import rise to a still solid 1.8%. There was particular weakness in capital goods imports, down 3.4%, and consumer goods, down 1.4% – both signs of weakening domestic demand at the end of the second quarter. The imports gains was further offset by ongoing strength in exports, broad-based across most categories except civilian aircraft, computers and telecoms. With the real (price adjusted) trade balance down almost $4.5bn in June, the contribution of net exports to Q2 GDP growth (already 2.4 ppts) will be revised higher later this month.

US IBD/TIPP consumer comfort up 5.4 pts in August. The gain in consumer optimism this month took this particular measure of confidence to its highest in six months. Lower gasoline prices and the stronger stockmarket would have been the major influences.

Japanese July corporate goods prices stronger than anticipated at 7.1%yr. That compares to the 5.7% rate recorded in June. The major portion of the overall gain is concentrated in raw and basic materials such as ferrous metals, chemicals and fuels.

German GDP may have fallen “more than 0.3%” in Q2 according to Bundesbank chief Weber. Previously we have heard rumours it fell up to 1.0% in the quarter. Official data due 14/8.

UK CPI jumped 0.6 ppts to 4.4% in July, beating the consensus for the fourth straight month, to be more than double the 2% target. This is not the peak – higher gas and water bills are yet to hit the figures. It wasn’t just food and energy prices lifting inflation – the core rate accelerated to 1.9% yr, which means that higher costs are to some extent being passed on to consumers, even despite weakening demand. Other data included weak house prices on two different measures and a soft sales report for July from British retailers.

Canadian trade surplus C$5.8bn in June. A sharp rise in auto exports following the strike that impacted GM but ended in late May, and surging energy exports, pushed the trade surplus to its highest since January 2006. But the auto boost is temporary and lower energy prices will soon feed through so the prospect is for a narrower surplus ahead.

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  Wed, Aug 13 2008, 05:54 GMT