Morning FX thoughts - 16 March '12

Westpac Global Markets Strategy Group

Friday 16th March 2012

Risk appetite rose, US economic data releases again encouraging. A NY regional manufacturing survey made a 21-month high, jobless claims extended a trend decline since mid-2011, and core PPI inflation was unchanged. Offshore investment in US long term financial assets rose significantly in January, led by treasury investments. .

The S&P500 is currently up 0.5% while the transports sub-index (considered a leading indicator for the main index) is up 3.6%. The CRB commodities index is up 0.2%, copper up 1.4% and gold up 1.0% but oil down 0.5% amid reports the US and UK may release emergency oil reserves. .

US 10yr treasury yields are 1bp higher at 2.28%, showing signs of selling fatigue after yesterday reaching 2.35% - a 4 ½ month high..

The US dollar index (DXY) is down 0.6%, unable to find support from the batch of positive US data. Like US treasuries, short-term fatigue may have been at play, and we note a technically bearish key day reversal was formed, pointing to at least a brief downward correction ahead. EUR extended an Asian session rebound to 1.3120. A severely overbought USD/JPY reversed from 84.15 to 83.20. AUD extended its Asian session rebound to 1.0554. NZD similarly rose to 0.8208 in the day’s outperformance. AUD/NZD fell from 1.2930 to 1.2850..

AUD/USD and NZD/USD outlook next 24 hours: There is no local data of note today, markets likely to focus on tonight’s US CPI, industrial production and consumer confidence reports. AUD appears to have completed a selloff since 29 Feb and targets 1.0560 and then 1.0590 today. NZD targets 0.8230-0.8250 next.

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