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Morning FX thoughts - 21 Oct '11

Westpac Global Markets Strategy Group

Friday 21st October 2011

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Volatile but little changed. Risk sentiment traced an up-down-up pattern after the Sydney close, European rumours and news headlines again the main influence.

During the Asian session, it was reported that Greece would receive the next tranche of its rescue package. Then around the NY open media reports that the 23 Oct EU summit would be delayed started appearing, causing a sharp selloff in equities. A few hours later, there was confirmation the summit would be held, but an additional summit has reportedly been scheduled for 26 Oct. Further, unnamed EU sources claimed a merging of two already agreed rescue funds into a EUR940bn entity was under consideration.

The S&P500 gyrated in a 1.5% range but is unchanged as we write. Commodities remained sceptical about any Eurozone resolution as well as a fall in Chinese equities (Shanghai Composite) to a July 2010 low, the CRB index down 1.2%, copper -6.1%.

US 10yr treasury yields are unchanged at 2.16% after fluctuating between 2.11% and 2.21%.

The US dollar index is little changed at 77.1.EUR rose from 1.3673 to 1.3843 before falling to 1.3676 and then bouncing back to 1.3676. USD/JPY spiked to 77.09 and settled around 76.90.

AUD bounced from the Sydney close of 1.0148 to 1.0298 during the London morning, fell to 1.0164 during NY, and is current up to 1.0258 – about where it was 24-hours earlier. NZD similarly bounced between 0.7873 and 0.7991, currently at 0.7942.

AUD/NZD bounced from a 1.2830 low early London, reaching 1.2920.

AUD/USD and NZD/USD outlook next 24 hours: The outcome of this Sunday’s EU summit will be the main influence on markets tonight (on possible advance headlines) and on Monday morning. AUD should remain inside its sideways range of 1.0120-1.0355 until any surprise headlines appear. NZD should similarly stay inside 0.7860-0.8010. Economic releases Au export/import prices and NZ migration pose minor event risk during the day.


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