Forex Fundamental Analysis Reports

Forex Exchange Morning Report

New Zealand Dollar: NZD well supported by bond-issuance

The NZD opened on Friday morning around 0.7935 and traded a fairly tight range first up with rumours of option barriers at 0.7950 keeping a lid on any upside gains. This level held for the better part of the day, however conceded as strong demand outstripped supply resulting in the NZD closing above 0.7950. Overnight this theme continued as the NZD reached a new all time high of 0.7994. Supporting the NZD was news of a fresh NZ$879m 2yr uridashi from Toyota Finance Australia. NZD/JPY jumped through 97.00 as Japanese housewives continued to chase yield. Finance Minister Cullen's attempts to 'spook' them through the powers he has under section 12 of the Reserve Bank Act were by and large ignored.

Australian Dollar: AUD continues its golden run.

The AUD extended its gains to rise to a new 18-year high of 0.8814 against the weak US dollar as investors continued to chase high yielding currencies. Local PPI data failed to have an impact despite printing stronger. Overnight risk aversion crept back into the market as subprime concerns hit the headlines again with AUD falling around 80 points after reaching a new high of 0.8834. However the currency pair quickly recovered to close around the 0.8800 mark.

Major Currencies: USD weakens as sub-prime losses weigh on equities.

The USD suffered further losses on Friday as sub-prime mortgage concerns continued to weigh on riskier asset classes. US equity markets fell 1%, pushing government bond yields to six week lows after St Louis Federal Reserve President, William Poole, suggested that losses in the non-prime mortgage market were large enough to negatively impact home building and consumer spending. The euro strengthened to a new high of 1.3844, while JPY printed a low of 120.87. Sterling posted a new 26 year high of 2.0587 boosted by stronger than expected Q2 GDP data. A broadly softer USD has pushed the DXY, the index of the USD against other major currencies, to its lowest level in 12 years.

Economic Data and Events

US Fedspeak: St. Louis Fed's Poole, typically a fairly hawkish member, was fairly scathing of losses in the subprime market, saying they have punished 'mostly bad actors and poor lending practices'. He did acknowledge, however, that nonprime mortgages have had the advantage of expanding credit access. While he said that consumer spending could be impacted by subprime losses via a decline in homebuilding, there was no sign of that yet, nor of problems spreading to the overall banking sector.

UK GDP growth 0.8% in Q2. This held annual growth at 3.0% yr, and represents the sixth consecutive quarter where growth has matched or exceeded the 0.7% 'speed limit' generally ascribed to the UK economy. As such, the Bank of England's output gap analysis in the forthcoming August inflation report will likely show intensified inflation concerns. The limited detail in this advance report showed services growth easing slightly to 0.8%, manufacturing accelerating to 0.6% and construction accelerating to 1.1%.

Events Today
Date Country Release Last Forecast
23 Jul Aust Q2 Producer Price Index flat 0.7%
UK Jul R'move House Prices %yr 13.2% 11.2%
24 Jul US Jul Richmond Fed Index 4 6
Fedspeak: Mishkin, Poole
Eur May Current Account €bn –4.0 –0.2
Jul PMI Manufacturing adv 55.6 55.2
Jul PMI Services adv 58.3 58.0

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