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The Australian dollar hit its lows in the London morning

Mon, Aug 18 2008, 06:55 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

News and views

An extension of the rout in (most) commodities plus unthreatening US economic data helped USD consolidate its London morning gains, albeit in sometimes whippy trade. Hedges against a weak dollar were further unwound, including platinum -8%, silver -10% while gold steadied after a dip as low as $773/oz. NYMEX oil fell as low as $111.34/bbl but bounced late to close little changed vs late Asia at $113.77. Equities posted modest gains. The New Zealand dollar was a clear out-performer, aided by unwinding of AUD/NZD longs, gaining a full cent to 0.7062.

The Australian dollar hit its lows in the London morning and in rollercoaster trade, gained about 30-40 pips to 0.8662 at the NY close.

EUR/USD resumed its decline, trading as low as 1.4659, its weakest point since 20 February.

USD/JPY was utterly range-bound in the mid-110s after its 75 pip rally in Asia- Pacific trade Friday.

US NY Fed index 3.8 in Aug. The NY Fed index headline question on business activity posted an 8 pt gain to its highest since January this month but the detail in the report painted a weaker story, with new orders falling 11 pts and shipments down 14 pts (and both turning negative). Employment rose 2 pts but remained in negative territory. The only obvious bright spot was the jump in the six month view on activity but this part of the survey is typically volatile with little demonstrated predictive value. The out-performance of the business activity responses might reflect factory bosses’ optimism that lower gasoline prices will help the economy.

US UoM consumer sentiment rises from 61.2 to 61.7 in Aug, building only slightly upon its solid July bounce, though the breakdown showed expectations rising at the expense of current sentiment. Even with the last two monthly gains, this confidence measure is still below where it was in the 1990s recession and close to the lows of the early 1980s slump. In August, inflation expectations fell sharply, although it was the turn of one-year out expectations this month, after longer term expectations fell in July.

US industrial production rose 0.2% in July, and manufacturing was even stronger at 0.4%, boosted by a further rise in auto output which might still be related to the end of the strike in late May which had impacted on GM. Auto output strength is unlikely to be sustainable given the weak state of sales. Business equipment output also picked up in July, though we expect this is more likely a reflection of export demand rather than domestic spending strength.

US TIC data showed lower long term capital flows into the US in June, due to net selling of stocks and lower bond purchases. This was in June when the US dollar was still under pressure; in July the dollar stabilised and in August it strengthened rapidly, so the next few months of TIC data should provide interesting (though backward looking) insight into what flows drove that appreciation.

Canadian manufacturing shipments up 2.1% in Jun. Another solid looking rise in shipments although once again it is mostly due to higher prices rather than volumes. Auto sales were a little softer than StatCan’s guidance for “relatively unchanged” in June, falling 1%. Their guidance this month for July is once again for “relatively unchanged” sales.

Outlook

NZD could be range-bound near term, with a quiet domestic calendar and some help from trimming of NZD shorts after recent NZ data fell short of the gloomiest scenarios.

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Published on  Mon, Aug 18 2008, 06:59 GMT