NEWS / Foreign Exchange

Sterling hits 15 year high

NZD within striking distance of post float high

There was good interest to buy the NZD yesterday morning with the currency hitting a fresh high of 0.7413 before retreating to spend the rest of the day in a tight range just under 0.7400. Much of the activity centred on NZD/JPY with good demand taking it to a 16 year high of 88.65 as investors interpreted a G7 statement from the weekend as supportive of carry trades. Overnight the price action was restricted to a tight 0.7380-0.7406 range with the market exercising relative caution ahead of CPI, migration and housing data all due out later this week.

AUD trims gains after posting 17 year high

The AUD opened strongly with good buying interest taking it to a 17 year high of 0.8359 but faltered at this level with a bout of profit taking it back to 0.8314. The currency also underperformed on the crosses especially against the yen with the market mindful of the heavy redemption of uridashi bonds in the weeks ahead. Overnight the AUD recouped most of the day??™s losses to finish the session around 0.8325.

Sterling hits 15 year high

GBP/USD opened strongly yesterday and looked set to push through the psychological 1.9900 level in the local session. It required upbeat UK data overnight to provide enough momentum to break through 1.9900 and the Jan 2007 high of 1.9915. The currency eventually went on to post a 15 year high of 1.9940. The euro spent yesterday grinding higher but stalled late morning at 1.3536. USD/JPY had a whippy morning session, trading between 119.65 and 118.98, but strengthened further overnight to a high of 119.87 as investors continued to enter carry trades following the G7 meeting.

Japanese Feb industrial production was revised up from a preliminary decline of 0.2% to a gain of 0.7%. That pushed the annual rate up to 3.1% from the preliminary 2.6%. Capacity utilisation rose 0.2%, against expectations of a decline.

US retail sales up 0.7% in Mar. Sales were stronger ex auto, up 0.8%, but much of that was due to a 3.1% rise in gas station sales; excluding autos & gasoline, sales gained 0.4%. While not that impressive, the overall tone of the report was solid, because Feb sales were revised up substantially from 0.1% to 0.5%, mostly due to ex auto & gas sales which saw their growth rate ramped up from -0.3% to +0.3%. There were very strong gains for building materials, apparel, sporting goods, general merchandise and food & drink retailers. The only significant declines were in non-store retailing (down 3.3% but not fully reversing Feb??™s 5.3% jump ??“ possibly due to internet shopping losing favour as the weather improved) and electronics, which has been sick since the start of the year. We will need to revise up our Q1 consumer spending contribution to GDP growth following these numbers.

US NY Fed ???Empire State??? index 3.8 in Apr from 1.9 in Mar. Although higher this month, the last two monthly reads on this index were the softest in nearly two years. This weak message from one of the (normally) most up-beat of the US factory indicators adds weight to the view that US manufacturing is in the doldrums.

US National Association of Homebuilders index down from 36 to 33 in April. Clearly the sub-prime mortgage market woes have hit homebuilder sentiment in the last two months.

US business inventories up 0.3% in Feb. A rebound in retail stocks lifted the Feb number, although the sluggish inventory-building trend remains intact.

US capital inflows down in Feb. Net long term TIC flows were down to $58bn from $99bn in Jan, due to agency paper losing appeal ??“ another impact of the sub-prime mortgage market implosion.

Canadian auto sales down 3.7% in Feb. This fall was close enough to the 4% decline anticipated by StatCan a month ago; their estimate for Mar was for flat sales growth. The surge in auto retailing seen in Q4 last year has now been mostly reversed.

Euroland inflation 1.9% yr in Mar. This confirmed the flash estimate from two weeks ago. The core rate was also 1.9% yr, unchanged from Feb.

UK March producer prices accelerate to 2.9% yr from 2.7% yr (core output measure). Higher commodity prices are impacting here. Other data showed UK house prices accelerating to 15.0% yr on the Rightmove measure in April, and 12.1% yr in the official government measure for Feb.