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AUD rose by 2.6% from Sydney's 0.8944 low to 0.9178

Fri, Oct 30 2009, 05:23 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

News and views

After six down days in US equities, there was something to soothe the bulls in the guise of an upbeat US GDP report for Q3, the +3.5% headline growth rate beating +3.2% consensus and reinforcing market perceptions the recession ended in June. US official President Obama’s chief economist, Christina Romer opined it marked the turn-around. Risky assets in the US and Europe rebounded, the S&P500 up 1.9% currently, and the VIX 10% lower. Copper (+3.1%) and crude oil (+3.5%) led a rally commodities, and along with gold (+1.8%) formed bullish key reversals. US 10yr notes were 12bp higher in yield from the Sydney close at one point, the renewed risk appetite dampening demand in the seven year auction. The bond session was also notable for marking an end to the Fed’s $300 billion treasuries purchase program.

The US dollar index reversed the previous day’s bullish price action, and that upward break can be labelled ‘false’ for now. EUR (key) reversed higher, from 1.4707 at Sydney’s close to 1.4850, unfazed by ECB jawboning. JPY was hurt by the move back into risk, USD/JPY rising from 90.50 to 91.60.

AUD rose by 2.6% from Sydney’s 0.8944 low to 0.9178.

NZD bounced from yesterday afternoon’s low of 0.7163 to 0.7369. AUD/NZD consolidated its gains between 1.2450 and 1.2500, its break above a six-month long channel technically significant.

US advance GDP grew 3.5% annualised in Q3, slightly ahead of market forecasts. Consumer spending led the way, particularly spending on durable goods thanks to the ‘cash for clunkers’ scheme. A 2.3% rise in government spending also provided support. A slower pace of inventory rundown meant that a greater share of demand was met through new production – a positive sign, although the US I still far from seeing an outright rebuilding of the level of inventories.

US initial jobless claims fell 1k to 530k last week. The downtrend in claims appears to be intact, but it has stalled a little recently. In contrast, continuing claims fell sharply again, down 148k to 5797k, though we caution that a factor at play could be claimants running out of benefit and so dropping out of the count.

Japanese September industrial production rose 1.4%, a solid outcome. The official projections for the next two months envisage further growth in output. The inventory-to-shipments ratio fell again, and the index is now at 117.2, down from 158.5 in February.

Eurozone sentiment surveys were generally stronger in October, with the biggest improvement in industrial sentiment from -24 to -21. The overall economic sentiment indicator rose from 82.8 to 86.2, the highest since September last year.

German unemployment fell 26k in October against expectations of a 15k rise. However, the method of calculating this series was changed in May and is likely to distort the figures through to April next year. The unemployment rate actually fell slightly to 8.1%.

UK mortgage approvals rose to 56.2k in September, with previous months revised higher as well. This is the highest level since March 2008, though still less than half of the peak reached in 2006. Net mortgage lending rose by £0.9bn, though overall consumer credit fell again by £0.3bn as repayments exceeded new lending.

Outlook

AUD/USD and NZD/USD outlook today: The previous day’s bearish price action was largely reversed yesterday, suggesting the post-March uptrends are still alive. Accordingly, we’d revert back to a buy on dips strategy on the day, while reserving judgement about the longer-term outlooks. AUD may find minor support at 0.9100, the NZD at 0.7300.

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Published on  Fri, Oct 30 2009, 05:28 GMT