Westpac Global Markets Strategy Group
Wednesday 28th September 2011
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Risk sentiment improved for the third consecutive day. Markets seem to be increasingly sensing a deeper resolve from European policymakers to address the debt crisis, although there was little significant fresh news on that front since the London session opened.
Probably of most importance was the successful Greek vote to implement a new property tax, increasing the chances of wider Greek fiscal reform.
The US also had some positive news, the Senate agreeing on a short-term funding measure and averting a government shutdown; the House is expected to pass the bill.
US data on housing, consumer confidence, and regional manufacturing activity was close enough to consensus to warrant a nil reaction.
The Eurostoxx 50 closed up 5.3% and the S&P500 is currently up 2.6%. The CRB commodities index is also up 2.6%, oil +5.0% and copper +4.7%.
Safe-havens were shunned and US 10yr treasury yields are up 11bp to 2.01%. That said, the 2yr auction went well, awarded at market yield and with a hefty bid-cover ratio of 3.8 (vs 3.4 12 month average). The better sentiment also helped the Greek 10yr rally by 75bp.
The US dollar index fell from 78.2 to 77.4 amid the better atmosphere for risk. EUR bounced for the second consecutive day, from 1.3481 to 1.3669. Safe-haven yen underperformed, USD/JPY rising from 76.40 to 76.84. AUD rose from 0.9848 to 0.9986. NZD outperformed, rising from 0.78220 to 0.7958. AUD/NZD declined from 1.2620 to 1.2525.
AUD/USD and NZD/USD outlook next 24 hours: The continuing improvement in global sentiment should again support the currencies. AUD’s bounce looks corrective but could continue to 22 Sep congestion around 1.0060. Similarly, the NZD’s next corrective target is 0.8000.
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