Morning FX thoughts - 9 March '12

Risk sentiment rose mainly on expectations that Greece’s bond-swap deal would be completed. Various media reported over 70% of bondholders had agreed to participate in the restructuring – enough to force the remainder to opt in and thereby avoid a disorderly default.

There may also have been residual optimism following Asian session rumours China would ease monetary policy by lowering banks’ reserve ratios. Higher German industrial production also helped the cause, and the central bank of Canada kept its policy rate at 1.0%, noting improved domestic and global conditions.

The ECB and BOE also kept rates on hold, the former raising its inflation forecast for 2012 from 2.0% to 2.4% and offering no hint of further stimulus. The S&P500 is currently 0.9% higher and the CRB commodities index is up 0.4%. US 10yr treasury yields are 4bp higher at 2.02%.

The US dollar index (DXY) is around 0.6% lower. EUR rose from 1.3165 to 1.3278. Safe-haven yen underperformed, USD/JPY rising from 81.20 to 81.73. AUD extended earlier gains, from 1.0600 to 1.0669, before consolidation from midday London onwards. NZD performed well despite a dovish RBNZ, continuing past 0.8200 to reach 0.8280 before settling between 0.8220 and 0.8260. AUD/NZD extended losses from 1.2940 to 1.2880.

AUD/USD and NZD/USD outlook next 24 hours: Domestic data is minor, Australian trade balance and NZ electronic spending. Of more market importance will be China’s data batch, including CPI and industrial production. The Greek bond-swap announcement is due at 6am London, and then we have the day’s main event – US payrolls.AUD should be supported at 1.0600 today and attempt to clear the 1.0650-1.0670 resistance area. Similarly, NZD should find support at 0.8200 and test 0.8280.

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