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Morning FX thoughts - 20 Sept '11

Westpac Global Markets Strategy Group

Tuesday 20th September 2011

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Risk aversion rose on little fresh news, markets continuing to react negatively to the weekend’s news that the finance ministers meeting in Europe resolved little and a discussion between the IMF/EU/ECB and Greece regarding the next tranche of aid was delayed.

Bundesbank President Weidmann weighed in with a warning that an expansion of the EFSF (European) bailout facility was unaccompanied by control facilities.

The Eurostoxx 50 closed down 2.9% although the S&P500 has recovered from -1.5% to -0.7% as we write, a headline quoting a Greek official saying a deal with the IMF troika is close boosting sentiment.

The CRB commodities index gapped 1.8% lower, oil -2.7%, copper -3.8%, and gold no refuge at -2.0%.

US 10yr treasury yields fell 13bp to 1.93%. Eurozone peripheral yields rose, the Greek 10yr up 200bp to 23.19% and the rest slightly higher.

The US dollar index gapped over 1% higher to 77.5 before settling at 77.2. EUR fell from 1.3707 to 1.3587 in London butt rebounded to 1.3695 in NY. Safe-haven yen outperformed, USD/JPY falling from 76.90 to 76.33 by the NY open, settling at 76.50.

Underperformer AUD fell with the European negativity from 1.0267 to 1.0167 (a one-month low) by the NY open, bouncing to 1.0230 on the fresh IMF headline as we write. NZD fell from 0.8255 to 0.8172 and is rebounding strongly to 0.8265 on the fresh headline.

AUD/NZD was stuck around 1.2440 until an hour ago, falling to 1.2390.

AUD/USD and NZD/USD outlook next 24 hours: This morning’s headline signalling an IMF/Greek deal on the next bailout tranche should support the currencies for the next few hours at least. AUD should stage a corrective bounce towards 1.0400 today. Today’s RBA minutes will be read for clues regarding any future rate cuts.  NZD should similarly bounce towards 0.8350. The fortnightly Fonterra dairy auction will be watched tonight for a correction of the 35% post-March slide in milk powder.


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