Morning FX thoughts - 8 Feb '12

Westpac Global Markets Strategy Group

Wednesday 8th February 2012

Risk markets nudged higher. There was speculation during the NY session that an announcement from Greece was imminent, later given credence by officials who said the PM would meet with the three coalition partners and would release a statement on the agreed austerity measures today.

This appeared to excite the Greek stockmarket, which closed 2.2% higher, but markets elsewhere were more restrained. The S&P500 is currently 0.3% higher, where the Eurostoxx 50 closed. Those markets were correct not to pre-empt a result, since as we write, the meeting has been delayed by a day.

Other news was minor for markets, German FM Schaeuble opposing any increase in the Greek bailout package and Fed Chairman Bernanke largely repeating last week’s testimony (apart from downplaying the significance of the recent strong US labour data). The CRB commodities index is 0.5% higher, oil +1.8%, copper +0.3%, and gold +1.5%. US 10yr treasury yields are 7bp higher at 1.98%.

The US dollar index is around 0.7% lower, mainly due to EUR strength. EUR outperformed, breaking up to a two month high, from 1.3100 to 1.3270. Safe-haven yen underperformed, USD/JPY rising from 76.62 to 76.97 but remaining well inside the range of the past six months. AUD extended its post-RBA gains slightly around the London open to 1.0823 – a six-month high - and then consolidated between 1.0763 and 1.0816. NZD fluctuated inside 0.8315 and 0.8374. AUD/NZD consolidated its 1.2 cent post-RBA gain and ranged between 1.2900 and 1.2960.

AUD/USD and NZD/USD outlook next 24 hours: The local calendars are quiet today, market attention focussed on any headlines from the various Greece-related meetings. For AUD, a sustained break above 1.0820 then targets 1.1000 (the 2 May 2011 secondary peak). The currency remains technically overbought but momentum remains positive, suggesting the rally can continue. NZD is even more overbought but no reversal signal is at hand yet. AUD/NZD has formed a bullish outside-up day, possibly indicating an imminent correction of its three month decline.

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