Forex Exchange Morning Report 06/10/13

by Joe Oliver, Forex Trading-Pips


Forex Exchange Morning Report Action Forex

Global market sentiment:

The Eurostoxx 50 closed up 1.8%, the S&P500 up 1.3%, and the CRB commodities index up 0.2%. Over the weekend China released a large batch of disappointing economic data which may weigh on sentiment today.

Interest rates: US 10yr treasury bond yields bounced on the payrolls data, from 2.05% to 2.18%. Australian 3yr government bond yields followed suit, rising from 2.44% to 2.54%, while the 10yr yield rose from 3.24% to 3.35%. The WSJ’s Fedwatcher Hilsenrath wrote a June tapering signal is likely.

Currencies: The US dollar index bounced off a multi-month low following the payrolls data. EUR/USD fell from 1.3285 to 1.3192. USD/JPY bounced from 95.00 (twomonth low) to 97.78. AUD was volatile but made a fresh 30-month low of 0.94229 before settling around 0.9500 into the close. NZD fell from 0.7997 to 0.7859 – a one-year low. AUD/NZD rose from 1.1900 to 1.2055.

The weekly speculative futures positioning report revealed NZD longs were unwound further, AUD shorts reached a record level, JPY and EUR shorts were pared, and USD longs hardly changed.

Economic wrap

US non-farm payrolls rose 175k in May, slightly ahead of market forecasts, though with 12k of downward revisions to the two previous months. The detail showed -6k factory jobs, +7k construction jobs, and just -3k government jobs, so still no significant sequester effect yet. Hours worked rose by 0.1%, following a 0.1% drop in April. The household survey played a bit of catch-up after having lagged the payrolls survey so far this year; employment rose 319k but was outpaced by a 420k rise in the labour force, leaving the unemployment rate a touch higher at 7.6%. The latest jobs figures are neither sufficiently strong nor weak to shift the debate around the timing of QE tapering, which Bernanke and others have indicated could begin later this year.

German industrial production soundly beat expectations for a roughly flat outcome, rising 1.8% in April. The numbers were bolstered by a weather-related rebound in construction, but manufacturing also rose by a solid 1.5%. Annual production growth now stands at 1%, a one-year high.

German exports rose 1.9% in April (3.4%yr), also much stronger than expected and the biggest monthly increase in almost a year. Imports rose even more, by 2.3% – another sign that German demand may have picked up from a sluggish Q1. That said, German business surveys remain soft.

Market outlook

Event risk today: NZ has Q1 manufacturing activity and possibly housing data, although none of these are market moving. Australia has a holiday. Markets are likely to spend the day responding to the weak Chinese data released over the weekend.

NZD/USD 1 day: 0.7859 below is vulnerable today, China data weighing.

NZD/USD 1-3 month: The uptrend since June 2012 has been broken and a decline towards at least 0.7800 is now likely. Long speculative positioning is being unwound, and NZ’s economic data momentum is likely to slow during the next few months.

AUD/USD 1 day: 0.9429 below is vulnerable today, China data weighing.

AUD/USD 1-3 month: The contracting range since July 2011 has broken down, pointing towards 0.9200 during the next few months. The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.

AUD/NZD 1 day: Towards 1.2150, relative speculative positioning favouring the AUD near term.

AUD/NZD 1-3 month: A corrective rally to at least 1.2150 is in store before the trend decline resumes below 1.1800. Relative fundamentals (e.g. RBA easing to 2.0% vs RBNZ stuck at 2.5%) favour the NZD medium term.

NZ 2yr swap yield 1 day: Taking the lead from US and Australian bond yields overnight (see above) it should open up 3bp at 2.95%.

The 2.80% level should now provide solid support in the event of any corrective declines if Fed QE reduction fears subside. Late-2013, though, we expect a rise above 3.20% based on NZ’s improving fundamentals and eventual RBNZ tightening in 2014….More at Forex Exchange Morning Report

More Reading