Friday 2 July 2010

Morning Report
Foreign Exchange Market News and views
Previous Range Today’s Open Expected There was little improvement in sentiment yesterday. Stocks drifted up early
Asia Overnight 8.00am NZD cross Range Today
in the European session, despite a slightly larger uptake of the ECB’s 6-day liquidity
tender (€111bn). Once again, however, weaker US data turned things sour. US 10yr
NZD 0.6798-0.6881 0.6795-0.6900 Ï0.6900 0.6870-0.6950 Treasuries briefly fell below 2.90% before settling just above at 2.94% at the close.
AUD 0.8315-0.8453 0.8333-0.8438 Ï0.8436 Ï0.8179 0.8380-0.8480 Commodities also suffered from the risk-averse sentiment, falling 1.5% on the day.
JPY 88.08-88.57 86.96-88.51 Ð87.60 Ð60.44 87.00-88.00 The DXY dollar index drifted steadily lower throughout the day as concerns over the
weaker US data offset any flight-to-safety bid. The euro was the outperformer, rising
EUR 1.2193-1.2247 1.2197-1.2486 Ï1.2521 Ð0.5511 1.2400-1.2600 from 1.22 to punch through 1.25 this morning, as the combined ECB tender results of
GBP 1.4914-1.4976 1.4873-1.5168 Ï1.5183 Ð0.4545 1.5100-1.5250 the last two days suggested that funding stresses in the Eurozone are not as bad as
feared.

NZ Domestic Market (Previous day’s closing rates) Australasian currencies were caught in a tug of war between risk aversion and the
weaker USD, eventually siding with the latter. AUD was choppier and underperformed
Cash Curve Govt Stock Swap Rates (Qtrly) slightly, but still ended the offshore session a big figure higher at 0.8440. NZD ticked
Cash 2.75% Nov-11 3.68% 1 Year 3.75% up from its 0.68 low during the European session, stumbled on the US data, but
2 Years 4.14% reached 0.69 by this morning.
30 Days 2.96% Apr-13 4.16%
3 Years 4.42% US ISM manufacturing was weaker than expected at 56.2, falling from 59.7.
60 Days 3.01% This was the second consecutive fall in the survey. Despite managing to record an
Apr-15 4.64% 4 Years 4.64%
90 Days 3.18% above 50 reading there was no obvious redeeming features in the June report, which
5 Years 4.82%
Dec-17 5.10% pointed to slowing industrial activity and diminishing inflationary pressures. There
180 Days 3.39% 7 Years 5.12% was broad-based weakness from the individual components with falls in employment,
1 Year 3.67% May-21 5.32% 10 Years 5.41% new orders and production. Of further concern was the fall in the ratio of new orders
to inventories which tends to lead the headline index. The dip suggests a move in the
headline down towards 50 in the next month or so.
World Bourses and Indices
US pending homes sales collapsed 30% in May, the largest monthly fall on
AUD USD
record (going back to 2001). Only the magnitude was a surprise; sales were expected
Cash 4.50% 0.00 Fed Funds 0.00-0.25% to plunge following the expiry of the homebuyer tax credit in April. Congress has
90 Day 4.87% 0.00 3 Mth Libor 0.53% 0.00 extended the deadline for applying for the credit from June to September (though
3 Year Bond 4.52% -0.04 10 Year Notes 2.95% +0.00 still only for sales contracts signed before 30 April). This may help to ensure that more
10 Year Bond 5.09% -0.02 30 Year Bonds 3.89% -0.01 of these conditional sales are completed, but it means it will be some time before a
clear, undistorted picture emerges of the underlying health of the US housing market.
NZX 50 2933.8 -38.3 CRB 256.2 -2.3 US initial jobless claims continued to edge higher in the week ending 26th June.
S&P/ASX200 4237.5 -64.0 Gold 1197.8 -44.2 Claims rose to 472k from 459k, offsetting most of the previous week’s decline. The
Nikkei 9191.6 -191.0 Copper Fut. 288.05 -2.85 four-week average continues to trend higher and currently stands at 466.5k – the
FT100 4805.8 -111.1 Oil (WTI) 72.93 -2.64 highest since March.
S&P500 1028.3 -2.4 NZ TWI 66.11 -0.23 Bank of Japan Tankan Q2 survey better than expected. The large manufacturing
headline jumped to +1 from –14, better than expectations. The large non-
manufacturing component improved from –14 to –5, (market –7, Westpac –5). On
Upcoming Events the key capacity indicators, employment improved beyond respondents’ predictions,
Date Country Release Last Forecast as did perceptions of excess productive capacity. Investment, sales and profits
2 Jul US Jun Non-Farm Payrolls chg 431k 0k expectations were all upgraded. All in all, this is a more optimistic document than one
Jun Private Payrolls chg 41k 180k could reasonably have anticipated.
Jun Unemployment Rate 9.7% 9.9% Eurozone manufacturing PMI was unchanged at 55.6 on the final estimate for
May Factory Orders 1.2% –0.8% June, confirming the modest slowdown from 55.8 the previous month. There was a
Eur May PPI %yr 2.8% 3.1% modest upward revision to the German survey up to 58.4 from 58.1, while France was
May Unemployment Rate 10.1% 10.1% nudged down to 54.8 from an upwardly revised 55.8. The UK survey declined from a
UK Jun PMI Construction 58.5 8.5 15-yr high of 58.0 to 57.5.
5 Jul Aus Jun ANZ Job Ads 4.3% –
Jun TD Securities Inflation 0.5% –
Jun AiG Performance of Service Idx 47.5 – Outlook
US Independence Day observed AUD/USD and NZD/USD outlook next 24 hours: Market focus is firmly on
Eur May Retail Sales %yr –1.5% – tonight’s US payrolls figures, and while this week’s run of poor data has dampened
Jul Sentix Investor Confidence –4.1 – expectations there is still plenty of room for disappointment, with the median
UK Jun PMI Services 55.4 – forecast looking for 110k private payrolls growth compared to 41k last month. A
6 Jul NZ Q2 NZIER Business Confidence 22% – weaker outturn would further fuel concerns about the pace of global growth, and
Aus RBA Rate Announcement 4.50% 4.50% would likely undermine NZD and AUD.
May Trade Balance A$bn 1.34 –
US Jun ISM Non-manufacturing 55.4 55.4
Jpn May Leading Index 101.7 – Imre Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
Can May Building Permits 5.4% – With contributions from Westpac Economics

Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 2 July 2010. All customers please note that this information has been prepared without taking account of your objectives,
financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac’s financial services
guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts
no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac
is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is registered in England as a branch (branch number BR000106) and is authorised and
regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. © 2010 Westpac Banking Corporation. Past
performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable,
the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.