Wednesday 11 August 2010

Morning Report
Foreign Exchange Market News and views
Previous Range Today’s Open Expected The US central bank put a floor under the earlier decline in risk markets by announcing
it would maintain stimulative policy by reinvesting proceeds from maturing securities
Asia Overnight 8.00am NZD cross Range Today
into 2yr-to-10yr-maturity US treasuries. The economic outlook was unsurprisingly
NZD 0.7224-0.7293 0.7166-0.7268 0.7241 0.7200-0.7270 downgraded, and its pledge to keep rate low for an extended period was maintained.
AUD 0.9110-0.9170 0.9058-0.9165 0.9135 0.7927 0.9080-0.9180 Markets interpreted the Fed support positively, with the prospect of further QE still on the
table. Us equities pared earlier losses, but are still 0.6% down on the day. Commodities
JPY 85.68-86.06 85.17-86.25 85.40 61.84 84.80-85.80 seemed unfazed by the event and are 0.8% lower, oil -1.7% and copper -1.0%. US interest
EUR 1.3135-1.3236 1.3074-1.3228 1.3184 0.5492 1.3130-1.3230 rates fell across the curve, apart from the isolated 30yr, the 10yr benefiting by 7bp to
2.75%. The 3yr auction saw a record low yield of 0.844%. US 3mth Libor continued to
GBP 1.5773-1.5912 1.5710-1.5910 1.5859 0.4566 1.5800-1.5900 grind lower, shedding 0.7bp to 0.40%.
The US dollar’s 1% fall after the Fed’s announcement was appropriate. EUR benefited after
NZ Domestic Market (Previous day’s closing rates) earlier falling to 1.3080, rising to 1.3220. USD/JPY fell from its intraday peak of 0.8620
Cash Curve Govt Stock Swap Rates (Qtrly) to 0.8520.
AUD was under the weather before the Fed meeting, weakening to 0.9060, the event
Cash 3.00% Nov-11 3.66% 1 Year 3.67%
reviving it to 0.9160.
30 Days 3.11% 2 Years 3.98%
Apr-13 4.16% NZD made a 0.7170 low before responding to 0.7260. AUD/NZD ranged sideways
3 Years 4.21%
60 Days 3.19% between 1.2580 and 1.2640.
Apr-15 4.63% 4 Years 4.39%
90 Days 3.28% US Fed to keep its balance sheet holdings constant. In the statement the Fed
5 Years 4.55%
Dec-17 5.07% noted “the pace of recovery in output and employment has slowed in recent months”.
180 Days 3.43% 7 Years 4.85% It maintained the “extended period” commitment to low rates (kept at 0-0.25% today)
1 Year 3.61% May-21 5.38% 10 Years 5.16% and also said it would “keep constant the Federal Reserve’s holdings of securities at their
current level by reinvesting principal payments from agency debt and agency mortgage-
backed securities in longer-term Treasury securities.”
World Bourses and Indices
US NFIB small business optimism slipped for the second month running, from
AUD USD
93.2 in May to 89.0 in June and 88.1 in July. But one bright spot was that the intention to
Cash 4.50% 0.00 Fed Funds 0.00-0.25% hire net balance rose to 2%, its highest for several years, further evidence that the small
90 Day 4.78% +0.01 3 Mth Libor 0.40% 0.00 business sector (the largest employer group in the US) may no longer be a drag on the US
3 Year Bond 4.66% -0.01 10 Year Notes 2.77% -0.05 labour market.
10 Year Bond 5.10% -0.01 30 Year Bonds 4.01% -0.00 US IBD-TIPP economic optimism fell from 44.7 to 43.6 in August, its third consecutive
decline. This month the fall was mostly driven by respondents’ assessment of Federal
NZX 50 3045.1 -9.4 CRB 272.3 -2.3 policies, although over the past three months, the economic outlook and personal finances
S&P/ASX200 4540.7 -54.2 Gold 1203.5 +2.7 components have been sharply weaker too.
Nikkei 9551.1 -21.4 Copper Fut. 330.85 -6.05 US productivity fell 0.9% annualised in Q2, given that output growth was a bit slower
FT100 5376.4 -34.1 Oil (WTI) 80.24 -1.22 than hours worked. Consequently unit labour costs rose 0.2%. There is no real new
S&P500 1123.6 -4.2 NZ TWI 66.76 -0.35 information in this report, which is derived from previously published data. Also, wholesale
inventories rose just 0.1% in June, their equal softest growth rate for the year, and a clue
that the stock-building contribution to Q2 GDP growth may need to be revised lower.
Upcoming Events BoJ decision, policy unchanged as expected. There was also no change in the outlook,
Date Country Release Last Forecast with the BoJ seeing the recovery as being broadly on track.
11 Aug Aus Aug Westpac-MI Cons Sentiment 113.1 –
UK house price update. The RICS house price net balance dipped to -8% in July, the first
US Jun Trade Balance $bn –42.3 –42.0 time a majority of surveyors have assessed prices as falling since July last year. Also the
Jul Mthly Budget Statement $bn –180.7 –169 DCLG government house price measure decelerated from 10.6% yr to 9.9% yr in June.
Jpn Jun Machinery Orders %yr –9.1% 5.4% In other news, the BRC reported weaker July retail sales, the same store measure slowing
Jul Corporate Goods Prices %yr 0.5% 0.0% from 1.2% yr to 0.5% yr. That may be a post World Cup spending slump effect.
UK Jul Jobless Claims Change –21k –30k
UK visible trade balance narrows £600mn to £7.4bn in June. Export growth outpaced
Jul Nationwide Consumer Confidence 63 61 imports.
BoE Quarterly Inflation Report
Can Jun International Merch. Trade C$bn –0.5 –0.4 Canadian housing starts fell 1.6% in July but the core urban single family component
fell 11.4%, its fourth straight decline. Also new house prices rose just 0.1% in June.
12 Aug NZ Jul Food Prices 1.3% 0.7%
Aus Aug WBC-MI Unemploy Expect’s –6.9% –
Aug MI Inflation Expectations 3.3% – Outlook
Jul Employment chg 45.9k 10k
AUD/USD and NZD/USD outlook next 24 hours: Possible further digestion of the Fed
Jul Unemployment Rate 5.1% 5.1%
event during the Asian and European sessions today should keep a floor under the AUD at
US Jul Import Price Index –1.3% 0.6%
0.9060 and the NZD at 0.7170, although weak equity and commodity markets will cast
Initial Jobless Claims w/e 14/8 479k 465k a bearish pall.
Jpn Jun Capacity Utilisation 0.8% –
Jul Consumer Confidence 43.6 43.9
Eur Jun Industrial Production 1.0% 1.0% Imre Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
13 Aug NZ Jul REINZ House Prices %yr 4.2% – With contributions from Westpac Economics

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