Morning FX thoughts - 17 Nov '11

Westpac Global Markets Strategy Group

Thursday 17th November 2011

Negative sentiment ruled as the fear of European contagion deepened.

Chinese stocks were dragged down by IMF warning on financial and property issues while the UK witnessed 15 year high unemployment rate.

The BoE and BoJ forecasted gloomy outlook for their respective economies while US economy continued to surprise on the upside as inflation and industrial production data turned out to be better-than expected.

French government bonds seem to be the new target for the markets as 10Y yield spread to German bund is at its highest since the establishment of common currency union.

Spanish and Italian 10Y yields rose sharply from their intra-day lows and are currently at 6.350% and 6.950% respectively.

Eurostoxx 50 rose nearly 2% in early trades helped by aggressive ECB purchases of Italian,Spanish and Portuguese debt, but pared gains on the BoE governor’s speech.

S&P 500 opened 1% lower. US crude futures crossed USD 100 mark and are up 2 % on the news of plans to reverse the Seaway pipeline in 2012 to correct excessive supply in Cushing, Okla. Gold is down 0.7%, copper -1%, while US 10 year yield is at 2.021%, down 2.43bps.

The US Dollar Index, after touching an intra-day high of 78.397, was quite volatile and is at 78.147.

Euro rose sharply from an intra-day low of 1.3429 to the high of 1.3557 on the ECB action and is trading at 1.3511.

AUD and NZD opened almost flat; weakened to touch an intra-day low of 1.0060 and 0.7626 respectively and then recovered sharply before falling again and are currently at 1.0140 and 0.7685 levels respectively.

USD/JPY is currently trading at 77.04, near previous close. AUD/NZD weakened to intra-day low of 1.3146, recovered all the losses and is currently trading flat at 1.3197.

AUD/USD and NZD/USD outlook next 24 hours: Australia Average Weekly Wages, New Zealand Producer Prices, followed by crucial macro economic data from both the US and Europe are the key events of the day. Still under downside pressure, we see AUD/USD and NZD/USD falling further towards their support pivots of 0.9986 & 0.7554 respectively. Bounces should be capped by 1.0240 & 0.7742 respectively, barring any big surprises.

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