Morning FX thoughts - 27 Jan '12

Westpac Global Markets Strategy Group

Friday 27th January 2012

Sentiment was mixed, a London-session rally reversed in NY.

Apart from the positive residual effects of the earlier dovish FOMC result, there was a story from Greek newspaper Ethnos that private sector bondholders had revised their debt-swap offer from a coupon above 4.0% to a more palatable 3.75%. Also helping was a good Italian bond auction and strong German consumer confidence.

Sentiment turned lower in NY after some weak data for new home sales and leading indicators. The S&P500 shed 0.8% after making a six-month high at the NY open to be currently down 0.2%.

The CRB commodities index is 0.5% higher, oil +1.3% and copper +1.9%. Global funding pressures continued to wane, US 3mth Libor extending a glacial drift lower since 5 January and down 0.3bp to 0.553%.

US 10yr treasury yields slipped from 1.98% in London to 1.93% in NY. The Italian 10yr yield fell 18bp but Portugal’s remained under pressure (+20bp) and made a fresh high.

The US dollar index slipped in London and then consolidated. EUR rose in London from 1.3100 to 1.3184 but slipped to 1.3140 in NY. USD/JPY fell from 77.70 to 77.29. AUD rose from 1.0600 to 1.0688 – a fresh three-month high - and then fell to 1.0630. NZD rose from 0.8167 to 0.8236 – also a three-month high - and then fell to 0.8200. AUD/NZD traced a sideways range of 1.2950-1.2990.

AUD/USD and NZD/USD outlook next 24 hours: The Australian data calendar is empty but NZ has the trade balance, government accounts, and RBNZ Governor Bollard’s speech to watch for. AUD’s upward trend remains intact, the next upside target 1.0750 (27 Oct high). NZD’s upward also remains intact, resistance nearby at 0.8243 and an overbought condition developing possible early warnings the rally may be ripe.

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