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Morning FX thoughts - 8 Sept '11

Westpac Global Markets Strategy Group

Thursday 8th September 2011

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The overnight session could be characterised as relief. Not a relief rally but just a relief.

The primary driver for markets, given the lack of significant data releases, was the German Constitutional Court ruling that Germany’s participation in European periphery bail outs was not unconstitutional. However, this ruling was not unbounded. The court requires any further disbursement to be approved by the German Budget Committee, thus adding another hurdle to future aid for peripheral European economies, if such a need becomes realised.

Market moves were small compared with recent days, EURUSD appreciated from 1.3973 lows to close the New York session at 1.4092;, US equities moved into black territory on the day (the S&P500 up 70points) although European equities rebounded by more (the Dax up 4 percent). Consequently gold spot depreciated from $1872/troy oz to $1823 today (with a low of $1793).

There were little data releases of significance to drive markets, instead the news headlines focussed on central bank rhetoric. Norges Bank Governor Olsen reiterated their view that the Norwegian Krone is not a safe-haven currency (stating its bond market is not liquid enough) although this had little impact on EURNOK, which continued to remain below yesterday’s pre-Swiss National Bank announcement levels. The Riksbank kept rates unchanged and revised down their growth forecasts for 2011 and 2012.

The Bank of Canada kept interest rates unchanged, noting there was a ‘diminished’ need to tighten monetary policy now but believing that Canadian growth would rebound.

The AUD appreciated modestly overnight, closing at the highs of 1.0645. Strong GDP and the market taking a breather were the catalysts for the move higher. The Aussie outperformed most majors: EURAUD and GBPAUD were lower and AUDJPY was higher on the day.

The NZ Dollar performed well into the New York close – AUDNZD was broadly unchanged at 1.2815 over the day – ending the day 0.5% higher against the US Dollar to 0.8311.


Data releases in the Antipodes today will focus on Australia’s labour market outturn. Expectations for AU employment vary widely from -15k to +25k, the median expectation is +10k, with Westpac expecting +12k. Market consensus expects the unemployment rate to remain unchanged. A stronger outturn will continue the AUD's bid theme: 1.0767 topside resistance (2 Sep high).

New Zealand is expecting retail credit card data for August this morning, a secondary release but the second month of the quarter, assisting in gauging how consumption fared during Q3. If the release comes within expectations, the NZD is likely to trade secondary to the AUD in the local session. There is some light resistance at 0.8350-60 to the topside, with the overnight low of 0.8207 support.


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