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Morning FX thoughts - 9 Nov'11

Westpac Global Markets Strategy Group

Wednesday 9th November 2011

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Political events in Europe were the major drivers for global markets. Announcements on a soon to be named Greek national unity government and its new prime minister, along with the anticipation of a negative outcome for Italian prime minister Berlusconi's budget vote had pushed equities higher.

Risk markets were mostly in green during the day with EuroStoxx 50 up 3%, oil 1.3%, S&P500 0.6%, VIX down 0.9 ppts and euro was trading 0.6% higher early NY time.

A surprise win by Berlusconi (though not an absolute majority) briefly spoiled the intra-day gains, but after consultation with the Italian President he has now apparently offered to step down. The bond market was also affected as the Italian 10 year bond yield soared to an all time high of 6.743%, while US yields fell sharply testing 2% level. Gold was down -0.1%.

Euro touched an intra-day high of 1.3844, then dipped to 1.3792 on the voting results before returning to its highs on the resignation news. Japanese yen was flat for most of the day, hovering around yesterday's close of 78.05 but surprised markets with a quick up move to 77.60, finally crawling back to 77.84.

AUD opened higher in early London trade but then fell to 1.0282 level during the mid-day, finally covering some of the intra-day losses to currently trade at 1.0348. NZD followed a similar path, with a low of 0.7924 but currently trading near yesterday's close of 0.7972. AUD/NZD touched the low of 1.2957, coming back again to 1.3025.

AUD/USD and NZD/USD outlook next 24 hours: Westpac consumer sentiment, Chinese economic data and New Zealand card spending statistics are the major events lined up for next 24 hours. AUD and NZD continue their bearish trends on the wake of fresh European woes and below-consensus Australian trade balance. Barring any surprise we expect AUD to test 1.0232 and NZD may test 0.7914. Positive surprises on the other hand may drive AUD towards 1.0447 and NZD can breach 0.7998. A close eye will be kept on Fed chairman Bernanke's speech tonight to get some indication on the next round of stimulus.


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