Morning FX thoughts - 14 Feb '12

Westpac Global Markets Strategy Group

Tuesday 14th February 2012

The positive tone during yesterday’s Antipodean sessions extended into London’s.

Greece’s parliamentary approval of the austerity plan removed an obstacle to avoiding a messy default, and it now remains for Wednesday’s EZ finance ministers’ meeting to stamp its own approval and clear the way for a new round of rescue funding.

Also helping the market tone was China’s Premier Wen, who said economic conditions in Q1 so far warranted PBOC attention. An FT article reported the government has directed its banks to rollover local government loans.

The Eurostoxx 50 closed up a muted 0.4% (perhaps due to scepticism Greece will fully execute the plan) and the S&P500 is 0.7% higher. US 10yr treasury yields are unchanged at 1.99% having earlier fallen from 2.03% to 1.96% in London. Peripheral Eurozone debt was quiet apart from Portugal which shed 56bp from its 10yr yield.

The US dollar index is slightly weaker. EUR extended gains until the London morning to 1.3284, then reversing to 1.3199 for little net change on the day. USD/JPY fell from 77.75 to 77.40. GBP consolidated between 1.5770 and 1.5825 as its QE3 program started with a GBP1.5bn purchase of 3y-7yr government bonds. AUD extended its domestic rally to 1.0779 and then retreated to 1.0723 with the EUR. NZD similarly peaked during early London at 0.8376 and slipped to 0.8331. AUD/NZD slipped from 1.2890 to minor support at 1.2860.

AUD/USD and NZD/USD outlook next 24 hours: Australia’s NAB business survey and a speech from the RBA Assistant Governor on Europe’s effect on Australian markets will be watched, and NZ food prices are of minor interest. US retail sales tonight should continue the strong run of data there. AUD and NZD broke above daily resistance yesterday, deferring the bearish case. AUD has immediate resistance at 1.0780 and support at 1.0690. NZD similarly has resistance today at 0.8380.

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