Morning FX thoughts - 17 Feb '12

Westpac Global Markets Strategy Group

Friday 17th February 2012

An up-day in risk markets continued the yoyo pattern which has prevailed since 9 February. Positive catalysts included stronger US data for housing starts and regional manufacturing, plus a German newspaper (Welt) report that the ECB will participate in the Greek bond swap.

An advisory firm’s note predicting the Greek bailout package would be approved on Monday also had market impact. The global easing theme was continued by Sweden’s central bank which cut its policy rate by 25bp to 1.50%.

The S&P500 rose from the NY open and is currently up 1.0%, negating the previous day’s technically bearish key day reversal. Commodities are slightly higher, the CRB index up 0.4%, oil +0.7%, copper -0.1%, and gold -0.2%. The improved risk sentiment pushed the US 10yr treasury yield 8bp higher to 2.01%. A 30yr inflation-linked auction went poorly at a real yield of 0.77% - 7bp above market.

The US dollar index is around 0.4% weaker. EUR extended the Asian session decline to 1.2974 by midday London but then reversed in NY to 1.3123. USD/JPY rose from 78.40 to 78.96 – a fresh four month high – as safe-haven yen underperformed. AUD outperformed, thanks to a positive employment data surprise, rebounding during the London morning from 1.0646 to 1.0774. NZD similarly bounced from 0.8246 to 0.8342. AUD/NZD held its earlier gains at around 1.2920.

AUD/USD and NZD/USD outlook next 24 hours: The local calendar is quiet apart from RBNZ Governor Bollard’s speech to an Australian-NZ business group in Auckland at noon (NZT). AUD remains inside its two-month old ascending channel, the lower bound today providing support at 1.0680. NZD, in contrast, did break below the comparable channel but has returned inside (just), still leaving it vulnerable to further declines if 0.8320 gives way.

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