Forex Fundamental Analysis Reports

Yield And Commodity Prices Support AUD
New Zealand Dollar: NZD rallies on CPI and USD weakness

After opening quietly around 0.7865 yesterday the NZD immediately rallied on the release of Q2 CPI data which came in at 1.0% for a year-on-year rise of 2.0%. The closely watched non-tradeables portion showed an increase of 1.1%, a level that will cause the RBNZ some concern. This saw the currency trading just short of 0.7900 ahead of rumoured option barriers before settling around 0.7870, triggering stop loss orders on the way down. A late afternoon buying spree saw a second attempt at 0.7900, this time trading as high as 0.7907 before ending the day around 0.7890. Continued USD weakness overnight saw the NZD trade as high as 0.7935, with the currency opening over 50 points higher than yesterday on a trade weighted basis.

Australian Dollar: Yield and commodity prices support AUD

The AUD's status as a high yielder saw it rally sharply yesterday as investors sought better returns on growing speculation that the Federal Reserve will keep US interest rates on hold. Strong gold and commodity prices also helped push the AUD to an 18-year high, with the currency also trading to a 16-year high against the JPY. Overnight trading saw the currency also supported by USD weakness as it opens today firmly above 0.8700

Major Currencies: USD continues to struggle ahead of key data.

The USD continued to struggle against most of the majors overnight as traders remained bearish the USD ahead of some key data later this week. The GBP continued its recent surge against the USD, touching on new a fresh 26 year high of 2.0405 as traders seemed content on chasing higher yields. The EUR remained close to recent highs, trading in a range of 1.3760 to 1.3804 as traders look ahead to US data for further direction. Most notably, US Producer Price Index out tomorrow as well as inflation and housing data out on Wednesday are expected to be key determinants of whether sentiment out of the US remains negative in the short term.

Economic Data and Events

US NY Fed index rises from 25.8 to 26.5 in July. Although the NY Fed index has regularly spiked into the mid twenties in the past few years, the last occasion that it managed to build upon the previous month's surge with a further rise was in Aug 2005. That suggests that there is some decent strength re-emerging in the region's manufacturing sector; the sharp gains in the orders and jobs indices back that view. In fact the steep fall in inventories suggests that NY bosses may have been a little caught out by the strength of demand for their products this month. But it also points to likely ongoing strength in production in coming months.

Canadian manufacturing shipments fall 0.1% in May. Softness in auto and metals offset gains in aerospace and energy to leave shipments essentially unchanged in May. Because many of these shipments are exports and are priced in US dollars, the rapid appreciation of the C$ dampens the data (i.e. less Canadian dollars are received for a given US dollar price). Adjusting for this, shipment volumes rose 0.4% (a positive for Q2 GDP calculations). Separately, auto sales slipped slightly in May compared to preliminary StatCan guidance which was that sales would be flat. Guidance for June is for a further 1% decline.

Euroland inflation 1.9% yr in June. No revision to the headline rate and the core rate stayed at 1.9% yr for the fifth month running. Given that the European Central Bank's definition of price stability (they don't like the word 'target') is close to but below 2%, this string of 1.9% outcomes must be quite satisfying for ECB officials!

UK house prices 10.9% yr in May. The government's official house price measure (from the Dept for Communities and Local Government) is more dated than the private sector surveys but shows essentially the same story - steady inflation, or perhaps even a slight deceleration so far this year, compared to last year's run up from close to zero growth to double digit inflation at the end of 2006. It seems that the past year of rate rises is starting to impact a little on the housing market; separately, mortgage lending data also show some moderation.

Events Today
Country Release Last Forecast
Aust Jun Merchandise Imports AUDbn 15.6 -
US Jun Producer Price Index/Core 0.9%/0.2% flat/0.2%
May TIC Data $bn 111.8 90.0
Jun Industrial Production flat 0.7%
Jun Capacity Utilisation 81.3% 81.6%
Jul IBD/TIPP Economic Optimism 49.1 47.0
Jul NAHB Index 28 27
Fedspeak: Hoenig
Jpn May Tertiary Activity Index 1.7% 0.2%
Ger Jul ZEW Analysts' Survey 20.3 24.0
UK Jun CPI %yr 2.5% 2.4%

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