Morning FX thoughts - 13 March '12

Westpac Global Markets Strategy Group

Tuesday 13th March 2012

The positive impetus from Friday's US employment data and the Greek restructuring appeared to wane as markets were more concerned by the weekend’s evidence of a slowdown in China’s growth.

Adding to the muted tone was Italy’s Q4 GDP finalisation of -0.7%, confirming the economy is in recession, plus the German Finance Minister telling a Belgian newspaper a third Greek bailout cannot be excluded.

The S&P500 is currently unchanged although the VIX index of risk aversion fell 1ppt to July 2011 low. Commodities were affected most by the China data, the CRB index down 0.6% with oil -0.9%, copper -0.4% and gold -0.8%.

US 10yr treasury yields are 1bp lower at 2.02% although did touch 1.99% early NY. A 3yr auction went well enough, 0.6bp above market but with a bid-cover of 3.4 (vs 3.3 average). The slight increase in the US budget deficit in Feb pushed yields a bp higher.

The US dollar index (DXY) held most of the previous day’s gains. EUR bounced from early London’s 1.3080 to 1.3157. Safe-haven yen outperformed on the day, USD/JPY confined to a 82.12-82.36 range. The AUD underperformed, falling from 1.0545 to 1.0474 – a 25 Jan low – before recovering to 1.0500 late NY. NZD fell from 0.8186 to 0.8137 but recovered fully to 0.8185. AUD/NZD fell from 1.2880 to 1.2830.

AUD/USD and NZD/USD outlook next 24 hours: Local data today is minor including Australian home lending and business confidence and NZD housing data and food prices. EZ finance ministers meet tonight in Brussels to sign Greece’s second rescue package. The AUD decline since 29 Feb is mature so a small bounce towards 1.0600 is possible today. NZD’s decline has further to go, 0.8137 today and possibly 0.8100.

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