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Morning FX thoughts - 18 Aug '11

Thursday 18th August 2011

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There was little for markets to respond to last night, most recording only modest changes. The S&P500 is currently unchanged, although it did spike briefly at the NY physical open.

US PPI data beat estimates, but had negligible impact. A weak revenue outlook from Dell was cited by some as a dampener on the opening surge. Fed hawks Fisher and Plosser explained their dissent at the recent meeting but markets were unsurprised.

The CRB commodities index gapped 1.2% higher in a lagged response to the recently improved risk environment, oil +1.1%, copper +1.1%, and gold +0.3%.

The US 10yr treasury yield spiked to 2.26% at the NY equities open but then slumped to 2.16%.

The US dollar index fell 1.0% after the Sydney close and is close to breaking down below the 27 July recent low. Conversely, EUR flirted with an upward break of its multi-month range, rising from 1.4325 to 1.4518.

The Swiss central bank announced an expansion of liquidity in an attempt to depress the franc via interest rates, but the market was expecting something bolder (such as a currency peg) and sold EUR/CHF from 1.1550 to 1.1222, eventually stabilising it at 1.1400. USD/JPY slipped from 76.70 to 76.40.

AUD rose from 1.0450 to 1.0601 by the NY open and then consolidated around 1.0550. NZD similarly rose from 0.8325 to 0.8426 before settling around 0.8380. AUD/NZD ground up to 1.2620 before settling around 1.2600.

AUD/USD and NZD/USD outlook next 24 hours: AUD broke above major resistance at 1.0500 and now targets the 1.0640-1.0655 zone. NZD could not sustain a peek above 0.8400, but a break outside its pivotal range of 0.8350-0.8425 is only a day or two away.

Source: Westpac Global Markets Strategy Group



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