Morning FX thoughts - 24 Jan '12

Westpac Global Markets Strategy Group

Tuesday 24th January 2012

Risk markets probed higher. Much of the London session was driven by reports (from Germany’s FTD for example) that a broad agreement between Greece and bondholders had been reached and negotiations were now focussed on detail, such as the level of the coupon on the swapped debt.

A level of 4.0% is supposedly agreeable, although the IMF troika and Germany are pressing for closer to 3.0%.

The S&P500 rose to a fresh post-July high of 1322 but then fell later in the NY morning by 0.9%, and is currently down 0.2%, after Dow Jones News reported a rumour that the IMF and EU will refuse to contribute any further towards Greece’s rescue.

The latest on this saga is a comment from an anonymous Greek official who said a final offer will be tabled on 13 February.

Other asset classes were more resilient, the CRB commodities index up 1.2%. US 10yr treasury yields are 5bp higher at 2.07%, earlier at 2.09% and breaking above a five-week range.

Eurozone peripheral yields are lower, the Greek 10yr down 59bp, Portugal down 18bp and Italy down 14bp.

The US dollar index continued its downward correction, losing around 0.5%. EUR rose from 1.2892 to 1.3053 and only slipped to 1.3005 after the negative DJ report. USD/JPY gyrated in a narrow 76.87-77.08 range.

AUD rose from 1.0485 to 1.0573, a 2 ½ month high, slipping in NY to 1.0517 with US equities. NZD rose from 0.8065 to 0.8142 – also a 2 ½ month high, and then slipped to 0.8092. AUD/NZD firmed slightly from 1.2980 to 1.3010.

AUD/USD and NZD/USD outlook next 24 hours: The local calendars are quiet. AUD momentum remains positive positive, now targeting above 1.0600. NZD has a similar upward bias with trend channel resistance at 0.8135.

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