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Morning FX thoughts - 12 Sept '11

Westpac Global Markets Strategy Group

Monday 12th September 2011

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Risk sentiment fell as speculation Greece may soon default on its debt mounted. German officials were preparing plans to shore up their banks for such, according to a Bloomberg report citing several unidentified coalition members. Additional bearish news included the unexpected resignation of ECB board member Stark, officially for personal reasons, but reportedly because of his opposition to the ECB’s intervention in bond markets.

The Eurostoxx 50 closed 4.2% lower while the S&P500 closed down 2.7%. Commodities were weaker, the CRB index gapping 1.7% lower, oil -2.3% and copper -3.5%.

US 10yr treasury yields made a fresh record low at 1.89% and then consolidated to close at 1.92%, a terror threat warning in NY boosting safe haven buying.

The Greek 10yr yield rose 43bp to 20.56% - a new high – and other peripherals were moderately weaker.

The US dollar index benefitted from the risk averse atmosphere, gaining 1.3% on the day and breaking above a four-month range. EUR weakened throughout the London session on the negative Eurozone news above, from 1.3880 to 1.3627, and consolidated in NY above 1.3650.It opened lower to 1.3580 in NZ this morning.

USD/JPY fell sharply during the period sentiment was weakest, from 77.80 to 77.10, but then recovered to 77.64. AUD followed the risk averse script and fell from 1.0634 to 1.0422 before consolidating late in NY. It traded down to 1.0423 at the NZ open this morning.

NZD fell from 0.8358 to 0.8192, and traded at 0.8205 this morning. AUD/NZD firmed from 1.2670 to 1.2740.

AUD/USD and NZD/USD outlook next 24 hours: AUD momentum is negative and any corrective rallies should be capped at 1.0480. The Australian trade balance for July is released today. NZD is now flirting with the 0.8200 support area and we expect a break lower eventually.


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