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Morning FX thoughts - 30 Nov'11

Westpac Global Markets Strategy Group

Wednesday 30th November 2011

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Markets moderately extended Monday’s positive rebound. In the US, consumer confidence posted a large positive surprise, and Fed vice-chair Yellen said enhanced guidance and asset purchases remained possibilities.

Italy managed to auction EUR 7.5bn albeit at higher yields (the 10yr at 7.56% vs 6.06% previously) and up to EUR 8bn was targeted.

A rumour the EU finance ministers meeting today will discuss a structure where the ECB lends to the IMF which onlends to needy EZ countries did the rounds.

The S&P500 is currently up 0.5%. The CRB commodities index is 0.6% higher, oil +1.5%, copper +0.4%, but silver -0.6%.

US 10yr treasury yields are 2bp higher at 1.99%, but were as high as 2.04% around midday NY. The peripheral Europeans were mixed, Greece (+108bp to 31.98% - a fresh high) and Portugal (+15bp) still shunned.

The US dollar index was choppy and is currently modestly lower. Underperformer EUR is little changed over 24hrs, spiking around noon London to 1.3442 before settling above 1.3300. News the ECB failed to fully sterilise its EUR 204bn bond purchases (it withdrew EUR 194bn) may have weighed.

USD/JPY fell from Asia’s 78.29 peak to 77.62 and settled around 77.85. Outperformer AUD extended higher, from 0.9930 to 1.0078 and settled around 1.0025, perhaps helped by Fitch’s one notch upgrade to AAA yesterday.

NZD similarly strengthened to 0.7652 before settling around 0.7620. AUD/NZD remained inside a 1.3100-1.3180 range.

AUD/USD and NZD/USD outlook next 24 hours: The EU finance ministers’ meeting today will be watched for headlines on crisis solutions. Australia also has private sector credit and house prices to watch. AUD’s corrective rally has retraced 38% of the month-long decline, any extension of this correction targeting 1.0210 next. NZD’s retracement has been shallow so far and targets 0.7700 next. NZ building permits today are minor for markets.

 



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