Morning FX thoughts - 18 Jan '12

Westpac Global Markets Strategy Group

Wednesday 18th January 2012

Sentiment improved. Investors appear to have adopted a positive stance at the start of the year, switching from cash to equities according to some US surveys.

That sentiment fitted price action last night, the S&P500 up 0.8% currently on some positive news flow.

China’s above consensus GDP report sparked the buying yesterday afternoon, and stronger sentiment surveys from Germany (ZEW) and the US (NY manufacturing) were also encouraging.

Wells Fargo, the biggest US home lender, beat Q4 earnings estimates, although Citigroup’s investment banking result was weak.

The Spanish 12mth and 18mth bond auctions went well, at lower yields than previous, and the Eurozone bailout fund raised EUR 1.5bn via 6mth bills, its bid-cover ratio a respectable 3.1.

Commodities performed well, the CRB index up 0.8%, including oil +2.0%, copper +2.6%, and gold +0.7%. US 10yr treasury yields are little changed at 1.85%, while Eurozone rpeipherals generally performed well – Greece -20bp, Portugal -16bp, Italy -12bp and Spain -5bp. Canada’s central bank remained on hold at 1.0%.

The US dollar index is around 0.5% weaker but remains in an upward trend since early November. EUR rose from 1.2725 to 1.2809 in London but shed all the gains in NY. Safe-haveen yen underperformed, USD/JPY initially slipping from 76.70 to 76.55 but the bouncing to 76.85.

AUD and NZD outperformed, the former continuing its China-inspired domestic session rally to 1.0450 and then slipping in NY to 1.0371.

NZD rose from 0.7980 to 0.8031 and slipped back to 0.7982. Fonterra’s dairy auction was mixed, staple whole milk powder slipping 0.6%. AUD/NZD is little changed at 1.2980 after spiking to 1.3030 in London.

AUD/USD and NZD/USD outlook next 24 hours: Westpac’s consumer sentiment survey for Australia is released today, as is vehicle sales which we expect to be soft. AUD momentum remains positive, defying our expectation of selloff this week. The immediate range is 1.0200-1.0450. Similarly, NZD should remain inside 0.7965 and 0.8030 today.

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