Morning FX thoughts - 5 Dec '11

Westpac Global Markets Strategy Group

Monday 5th December 2011

Risk markets rose and fell around an apex marked by the US payrolls report.

Markets were initially buoyed by a Bloomberg report (unattributed) that the Eurogroup is working on a proposal for up to EUR 200bn in Eurozone central bank loans to the IMF.

Disappointment set in after the US payrolls report showed 120,000 jobs gained, which while close to consensus among economists was lower than the 250,000 ‘whispered’.

Further bad news came after during the NY session when a report from thehill.com said that US Congressional Conservatives might be attempting to block US IMF funding for Europe - important since the US is the largest contributor.

The S&P500 made a fresh two-week high early is the session but then slumped to close unchanged on the day. The CRB commodities index similarly closed unchanged. US 10yr treasury yields saw a knee-jerk spike to 2.16% on the payrolls report (possibly due to the sharp fall in the unemployment rate) but then fell to 2.03% by the close, forming a technically bearish (yields) key day reversal.

The US dollar index closed 0.4% higher. EUR peaked at 1.3548 on US payrolls and then plunged to 1.3363, closing at 1.3391. USD/JPY ground higher from 77.76 to 78.08. AUD rose from 1.0208 to 1.0324 on the pre-NY optimism and initial US payrolls reaction, but then slumped to 1.0197, closing at 1.0215. NZD peaked at 0.7840 early NY and slumped to 0.7763. AUD/NZD rose with risk sentiment to 1.3183, later slipping to 1.3120.

AUD/USD and NZD/USD outlook next 24 hours: There is minor Australian and NZ data today but markets will be looking ahead to the week’s central bank meetings (RBA Tue, RBNZ and ECB Thu) and EU leaders’ summit (Fri). AUD must break above 1.0325 area resistance during the day or two in order to retain its positive momentum. NZD continues to target 0.7950 during the next few days.

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