Morning FX thoughts - 19 Oct '11

Westpac Global Markets Strategy Group

Wednesday 19th October 2011

A rebound in NY. Risk sentiment was weaker during the Asian and early London sessions, weighed by Moody’s announcement it was reviewing France’s Aaa rating and a slightly weaker China GDP annual growth rate.

The NY session marked a turnaround, lifted by a Q3 earnings surprise from Bank of America, stronger US data, and comments from German Chancellor Merkel that this weekend’s EU summit was an important, but not final, step in solving the Eurozone debt crisis.

The Eurostoxx 50 earlier closed down 0.4% but the S&P500 is currently up 1.3%. Commodities were little changed overall, oil +2.1%, copper -0.5% and gold -0.8%.

Fonterra’s fortnightly dairy auction saw prices up 1.7% overall.

US 10yr treasury yields are little changed at 2.14% after reversing from a London low of 2.08%. Fed chairman Bernanke’s speech on the recent recession offered no policy hints.

The US dollar index rose in London and fell in NY for little net change. EUR also co-moved with risk sentiment, falling from 1.3750 to 1.3653 in London and rebounding to 1.3758 in NY.

USD/JPY was confined to a 76.63-76.91 range, receiving a modest lift from news the BOJ was forming a team to address the strong yen.

AUD slipped further after the Sydney close around 1.0200 to 1.0118 but rebounded in NY to 1.0245. NZD similarly fell from 0.7945 to 0.7861 and rebounded to 0.7954. AUD/NZD followed the majors, dipping to 1.2850 before recovering to 1.2895.

AUD/USD and NZD/USD outlook next 24 hours: Immediate AUD direction is unclear until the 48-hour range of 1.0118-1.0372 breaks. NZD’s comparative range for today is 0.7861-0.8068. AUD/NZD signals (outside-up day) further upside above 1.2900 today. RBA-speak from Battellino and Edey will be watched this morning.

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