Morning FX thoughts - 12 Aug '11

Friday 12th August 2011

Equity markets rebounded in Europe and the US, the improved sentiment lifting risky currencies, treasury yields, and commodity prices. Investors were galvanised after a stronger-than-expected US jobless claims report, the S&P500 bouncing after its release and continuing as we write to +5.0% on the day. The VIX barometer of risk aversion dropped 4ppts to 39. The CRB commodities index is up 1.8%, oil +3.2%, copper +3.1%, but futures margin hikes pushing gold down 2.7% to form a bearish key reversal day.

The US 10yr treasury yield was at 2.13% pre-jobless claims, rising 24bp to 2.36% during the hours afterwards. The 30yr auction was horrible, awarded at 10bp above market yield, and with a bid-cover ratio of 2.1 – a February 2008 low. Eurozone peripherals were again under pressure, Greece’s 10yr up 41bp, Ireland +23bp and Portugal +22bp, although ECB intervention helped Italy and Spain outperform.

The US dollar index bounced ranged sideways between 74.40 and 75.06. EUR dipped to 1.4104 pre-jobless claims and the bounced to 1.4294, settling between 1.4200 and 1.4250. EUR/CHF surged from 1.05 to 1.09 after rumours the Swiss central bank was considering a currency peg. USD/JPY ranged sideways between 76.40 and 77.00. AUD dipped to 1.0171 around midday London and then followed equities higher to 1.0360 as we write. NZD dipped to 0.8128 and then rose to 0.8335. AUD/NZD rose to 1.2600 before the improved risk sentiment dragged it lower to 1.2400.

AUD/USD and NZD/USD outlook next 24 hours: AUD bounced off 1.0110 support nicely and should now test 1.0400 above. NZD should head towards 0.8400. Tonight’s US data releases and Fed dove Dudley’s speech will be major influences on short-term market sentiment.

Source: Westpac Global Markets Strategy Group

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