Morning FX thoughts - 11 Oct '11

Westpac Global Markets Strategy Group

Tuesday 11th October 2011 1 Comment

Markets rally on German/Franco pledge. The weekend’s joint announcement by Germany and France that a plan to recapitalise European banks and address Greece’s debt problems will be hatched and presented to the G20 meeting on 23 November appeared to fuel optimism the Eurozone debt crisis may be contained and pushed equity indices higher.

The Eurostoxx 50 closed up 2.3% and the S&P500 is currently up 2.8%. There was otherwise little to pin the rally on, although a delay in the EU summit from 17 Oct to 23 Oct may be a clue a plan is in the works.

Commodities continued to bounce, the CRB index up 1.8%, oil +3.2%, copper +2.9%, and gold +2.1%. US treasury markets were closed for the US holiday, but the 10yr note futures equivalent traded and implied a yield rise of around 14bp.

The US dollar index fell throughout the London session, losing around 1.5% and all major risky currencies rose. EUR rose from 1.3456 to 1.3699. Defensive yen underperformed, USD/JPY ranging between 76.57 and 76.77.

AUD rose from 0.9830 to 1.0015 and was the day’s outperformer along with the Swiss franc. NZD rose from 0.7735 to 0.7858. AUD/NZD rose with risk sentiment from 1.2700 to 1.2750.

AUD/USD and NZD/USD outlook next 24 hours: Currencies are in corrective mode, retracing September’s declines and correcting previously oversold conditions. AUD’s next corrective target (50%) is 1.0077 above but beyond 1.0150 will be difficult.

NZD should run out of steam between 0.7890 and 0.8150, our preferred target 0.7960. There is Australian business confidence, NZ electronic spending, possibly REINZ housing, and NZ’s financial accounts to watch today, but European headlines will continue to dominate.

Comments from our readers

On 11 October 2011 at 10:54 am The Dude said:

No wonder the financial markets are in ruins. The gamblers will always keep on Gambling. We are in a very bad situation in Europe; a country is about to go bankrupt followed by a couple more soon and a couple of leaders say they will fill the banks with money and now suddenly risk aversion is off and the gamblers can start betting on the Kiwi (a risk asset) again! its fricken crazy!!! Sort all the crap out first before gambling on the Kiwi and other riskier assets!!! GAMBLERS ruin this country.