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Morning FX thoughts - 31 Aug '11

Wednesday 31st August 2011

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Risk appetite continues to firm

US stocks firmed again today, albeit shedding gains into the close with the S&P closing up 0.2% (it was up 0.8% at one stage). The early tone was defensive with the European Accounting Standards Board warning the Eurozone banks have still not written down much of their Greek debt and Italy’s Berlosconi signaling that he is considering watering down Italy’s EUR45bn austerity package.

US consumer confidence data did not help matters either, plunging 15pts to well below consensus at 44.5 vs expectations for a lesser decline to 52.0. US Investors though shrugged off the negatives, focussing instead on a stream of dovish Fed commentary. Chicago Fed president Evans suggested he is prepared to vote in favour of more accommodation and later in the day one of the "Gang of 3" dissenters from the Fed's 9 August meeting – Kocherlakota – effectively recanted on his dissenting vote.

AUD grinded steadily higher through NY trade from session lows near 1.0620 to a high of 1.0721, while NZD rose from early NY session lows around 0.8480 to a high of 0.8558 late in the day.

EUR/USD was 'spooked' by an article in the FT that suggested the ECB is to reassess inflation risk, falling from 1.4520 to 1.4400 in European trading, but regained poise through NY and drifted back toward 1.4460.

Outlook: Players look increasingly comfortable buying AUD and NZD on dips for now, through EUR will find sellers into 1.4500. Significant volatility in August means the end of month fix is sure to produce significant volatility in London this evening. Sharp falls in global stocks have many looking for the USD to (be) bought at the fix. NZ sees the release of the NBNZ business confidence today while Australia sees RBA credit aggregates.

Source: Westpac Global Markets Strategy Group

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