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Morning FX thoughts - 14 Sept '11

Westpac Global Markets Strategy Group

Wednesday 14th September 2011

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Sentiment improved slightly on scant new information.

Europe remains the centre of attention and comments from French bank officials that Greek exposures are manageable and access to USD funding remains intact seemed to soothe the markets. Germany’s leader Merkel was optimistic Finland’s conditions for lending to Greece would be met, and the ECB bought Italian bonds, both supporting the improved sentiment on the day.

Equities, commodities, and risk currencies all rose albeit in hesitant fashion and concerns around the European sovereign and banking sectors remain. The Eurostoxx 50 closed up 2.1% and the S&P500 was up 1.0% until an hour ago, a slump occurring as we write.

The CRB commodities index is up 0.5%, oil +2.1% and copper +0.2%. US 10yr treasury yields are 4bp higher at 1.99%. A 10yr auction was awarded 1bp above market yield and the bid-cover of 3.0 was slightly below average.

The Greek 10yr rose 94bp to 24.48% as selling continued, and the Italian 10yr rose 14bp around a weak auction and denial China was planning to buy Italian debt.

The US dollar index ground lower amid the better risk atmosphere. EUR rose from 1.3558 to 1.3739 but has slipped as we write to 1.3674. USD/JPY slipped from 71.12 to 76.81 during the London morning and remained thereabouts through the NY session.

AUD ranged sideways between 1.0263 and 1.0362, perhaps weighed by the earlier reported slump in Australian business confidence. NZD data earlier in the day was also uninspiring, but it managed to grind slightly higher to 0.8272. AUD/NZD dribbled lower from 1.2560 to 1.2500.

AUD/USD and NZD/USD outlook next 24 hours: AUD momentum remains negative and any 1.0480 remains major resistance above, with minor resistance at 1.0385. Any break below 1.0255 today points to 1.0110 next. Consumer sentiment and dwelling starts are released today, our expectation for the latter below consensus. NZD’s recent rally looks corrective and should not exceed 0.8350.

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