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Morning FX thoughts - 31 Oct '11

Westpac Global Markets Strategy Group

Monday 31st October 2011

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Time for a pause. Thursday’s powerful surge in risk sentiment failed to extend on Friday as euphoria over the grand Eurozone rescue plan gave way to questioning its likely efficacy.

German Chancellor Merkel said in a speech the debt crisis won’t be over in a year, and Fitch rating agency said the agreed 50% haircut of Greek debt constituted a default – at odds with the ISDA’s preliminary assessment.

Italian 10yr government bond yields rose 15bp after a weak auction, and Spain’s 10yr closed 18bp higher. Equity markets were subdued, the Eurostoxx 50 closing 0.6% lower, and the S&P500 unchanged.

Commodities were similarly contained, the CRB index down 0.4%.

US 10yr treasury yields closed 8bp lower at 2.32%, perhaps making the boldest statement among all the asset classes regarding the Eurozone plan. Weak US personal income data and an advisory firm’s report that Wednesday’s Fed meeting may announce MBS purchases may also have contributed.

The US dollar index was stuck around 75.0 throughout the London and NY sessions. EUR drifted between 1.4198 and 1.4134. USD.JPY was stuck between 75.68 and 75.94, but opened this morning in NZ at 75.66.

AUD outperformed the majors in Friday, bouncing from 1.0659 to 1.0732. and opening this morning at 1.0700. NZD rose from 0.8166 to 0.8241, and opens this morning at 0.8220. AUD/NZD fell from a NY peak of 1.3070 to 1.3010.

AUD/USD and NZD/USD outlook next 24 hours: AUD’s 1 September peak of 1.0765 remains a major obstacle above, and we favour a drift lower today, although multi-day momentum remains positive. Similarly, NZD can drift down to 0.8110 before another attempt on 0.8240. There is only minor domestic data today for markets: Australian house prices and private secttor credit, and NZ building permits.


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