Morning FX thoughts - 15 Nov'11

Westpac Global Markets Strategy Group

Tuesday 15th November 2011

US President Obama's strong remarks over China's currency valuation and trade practices strained markets, fearing trade war.

Markets saw mixed results with European stocks trading in the red as euro area industrial output slid the most in 2.5 years, while Asia advanced on hopes of euro area political progress along with increased lending in China.

New Zealand Q3 retail spending increased the most in 4.5 years, led by Rugby World Cup tourism. Risk sentiment turned negative today as fears of slowdown in the euro area grew stronger.

Italian and Spanish 10 year government yields rose to 6.70% and 6.05% respectively, Italian 5yr yields hitting a record high of 6.29% in the auctions.

The Eurostoxx 50 opened higher but fell 1.5%, the S&P is down 0.5%. Copper rose 1.3% on the hopes of better growth numbers from China, gold is 0.5% down, oil –1.6%. The US 10 year yields dropped by 8 bps from an intra-day high of 2.14%.

The US dollar Index gained 1% as risk aversion was back among the investors. AUD, NZD and EUR opened higher but then pared gains to currently trade near their intra-day lows. The euro fell from an intra-day high of 1.3815 to the low of 1.3615.

AUD touched the high of 1.0350 but then dropped by almost 1% and is near its intra-day low of 1.0161. NZD movement was similar with the high of 0.7930 and the low of 0.7762. JPY is trading in the band of 77.29-76.82, currently at 77.04. AUD/NZD is facing strong resistance from previous closing levels of 1.3088 and is at 1.3082.

AUD/USD and NZD/USD outlook next 24 hours: Australia new motor vehicle sales, New Zealand non-resident bond holdings and data from Europe are to be closely watched. We favour a bear move, where AUD/USD and NZD/USD would test their respective support pivots of 1.0106 and 0.7732.and see their respective resistances at 1.0431 and 0.7948.

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