Morning FX thoughts - 11 Jan '12

Westpac Global Markets Strategy Group

Wednesday 11th January 2012

Sentiment stronger. Most risky asset classes strengthened, the moves attributed to Alcoa’s strong opening of the Q4 US reporting season (sales revenue beat estimates and its global growth outlook was positive), expectations that China will ease monetary policy further in the wake of a weak import report yesterday, and Fitch commenting that Germany’s AAA was safe and it was unlikely to downgrade France in 2012 (Italy, on the other hand, was mentioned as a downgrade candidate).

The S&P500 was up 1.2% during the NY morning, making a five-month high, and is currently +0.8%. The Eurostoxx 50 earlier closed up 2.7%, as did the Shanghai Composite.

Commodities were strong, the CRB index up 1.2% with oil +1.1%, copper +2.7% (China’s import of this rose in Dec), and gold +1.3%. US treasury bond yields initially followed suit, the 10yr rising to 2.01%, but later settled back at 1.97%.

The US dollar index is little changed at 80.9. EUR also consolidated, after a 1.2743 London low, between 1.2763 and 1.2818. Defensive yen underperformed, USD/JPY locked inside 76.78 and 76.91.

Commodity currencies stood out, BRL, AUD and NZD the top performers on the day. AUD rose from a London morning 1.0281 to 1.0352 but settled back at 1.0320.

NZD rose from 0.7917 to 0.7966 in London after a strong domestic afternoon, possibly driven by AUD/NZD speculative sellers. AUD/NZD spent the evening consolidating around 1.3000 after breaking down from 1.3150 two days ago.

AUD/USD and NZD/USD outlook next 24 hours: There’s little of note on the local calendars today, tomorrow evening’s ECB meeting the next major event to watch. The probably corrective rallies in AUD and NZD retain momentum. AUD’s immediate overhead resistance is at 1.0385 and any break of that would usher 1.0500. NZD should struggle above 0.8000.

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