The US dollar index fell as risk sentiment improved. EUR rose from 1.2160 to 1.2300 before the Moody’s news, falling back to 1.2210. USD/JPY was under pressure all evening, from 92.10 to 91.45.
AUD performed well after the NZ close, rising from 0.8550 to 0.8667 before following the EUR back to 0.8590. NZD rose from 0.6930 to 0.7021, pulling back to 0.6960. AUD/NZD continued its directionless pattern, ranging between 1.2330 and 1.2390. No US data to report.
World Bourses and Indices AUD 4.50% Cash 4.90% 90 Day 3 Year Bond 4.82% 10 Year Bond 5.37%
Global equities continued their week-long rebound, but were disturbed late in the NY session by news Moody’s had downgraded Greece by four notches to Ba1, sub-investment grade, citing economic risks. Note that S&P already has Greece at a similar rating, and Moody’s did say a debt restructuring can be avoided, leaving the outlook at stable. The S&P500 is currently up 0.1%, having been +1.3% an hour after the open. The VIX index (risk aversion barometer) has slipped further. Commodities surged, the CRB index up 1.6%, including oil +1.9% and copper +2.8%. US 10yr treasury yields returned to Asian closing levels after the Moody’s news. Greek 10yr government bond yields rose 16bp, partly on earlier equities’ strength, but 10yr Spain rose 22bp and made a fresh two year high. There was market chatter that Spain will be forced to tap the EU rescue package.
USD Fed Funds 3 Mth Libor 10 Year Notes 30 Year Bonds
0.00-0.25% 0.54% 0.00 3.26% +0.03 4.19% +0.04
CRB Gold Copper Fut. Oil (WTI) NZ TWI
260.0 1222.7 297.00 74.97 67.40
+4.1 -3.2 +4.35 +1.10 +0.09
Upcoming Events Date Country Release Last Forecast 15 Jun NZ May REINZ House Prices %yr 6.2% – Aus RBA Deputy Governor Battellino Speaking Jun RBA Board Meeting Minutes US May Import Prices 0.9% –2.0% Jun NY Fed Factory Index 19.1 24.0 Apr Net Long Term TIC Flows $bn 140.5 30.0 Jun NAHB Housing Market Index 22 20 Jpn BoJ Policy Decision 0.10% 0.10% Eur Apr Trade Balance sa €bn 0.6 1.5 Ger Jun ZEW Economic Sentiment 45.8 40.0 UK May RICS House Price Balance % 17% 15% May CPI %yr 3.7% 3.5% Apr House Prices %yr 9.7% 10.0% Can Q1 Productivity 1.4% 1.3% 16 Jun NZ Q2 Consumer Confidence 114.7 – Aus Apr Leading Index 6m ann’lsd% 8.7% – Q1 Dwelling Commenceme Commencements nts 14.5% 5.0% US May Producer Prices –0.1% –0.9%
Euroland industrial production rose 0.8% in April, broadly consistent with previously published national data, which included back to back gains in German IP in March-April but a small April fall in France. The UK’s newly created and independent Office for National Budget Responsibility published revised economic and fiscal forecasts, which will underpin the June 22 emergency budget to be delivered by Chancellor Osborne. The growth profile was lowered sharply from that forecast by the outgoing Labour Govt in March. However the deficit and debt forecasts out to 2015 were also lower, because the new figures are based on central tendency forecasting whereas the previous methodology was designed to add caution to the forecasts (i.e. they were based on the lower end of the growth forecast range). For example the growth forecast in 2010 was cut from 3.25% to 1.3% (much closer to Westpac on 0.7%) but the budget deficit for FY 2010-11 was cut from Labour’s £163bn to £155bn. Canada auto sales fell 4.7% in April, which along with the 4.2% drop in March has erased the sharp rebound in sales earlier in the year. StatCan gave guidance that the May figures would be roughly flat.
Outlook AUD/USD and NZD/USD outlook next 24 hours: Asian and European markets have yet to price the Moody’s news, so that the risk is for a pullback in commodity currencies today. That would be consistent with their intraday overbought conditions. AUD could retreat to previous resistance at 0.8550. NZD would do likewise, correcting to previous resistance at 0.6900.
Imre Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266 With contributions from Westpac Economics