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Morning FX thoughts - 16 Sept '11

Westpac Global Markets Strategy Group

Friday 16th September 2011

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International policymakers to the rescue.

Risk appetite rose last night after the ECB said coordinated with the Federal Reserve, Bank of England, Bank of Japan and Swiss National Bank to provide three-month USD funding to eurozone banks, some of which had recently stuggled to raise USD's, for the remainder of 2011.

The Eurostoxx 50 closed 3.5% higher and the S&P500 is currently up 1.6%.

Additional supportive news came from Greece, which reaffirmed it will stick to its fiscal targets and Italy, which passed austerity measures through its lower house.

Spanish and French bond auctions went well.

US economic data was mixed, above-consensus CPI readings probably ruling out quantitative easing for now, but manufacturing surveys and jobless claims disappointing.

The US 10yr treasury yield bounced on the inflation data and again on the USD-funding announcement, peaking 14bp higher at 2.12% and currently at 2.08%.

The Greek 10yr yield fell 281bp to 22.87%, forming a technically bearish (for yields) key day reversal.

The US dollar index fell almost 1% on the improved risk backdrop.

EUR performed well, surging from 1.3774 to 1.3937 on the USD-funding news, currently consolidating at 1.3885.

USD/JPY is little changed at 76.65 although did briefly spike to 77.28 on the funding news.

AUD rose to 1.0347 after the USD-funding news and then consolidated around 1.0330. NZD rose from 0.8120 to 0.8280 and settled at 0.8235. AUD/NZD ranged between 1.2480 and 1.2560.

AUD/USD and NZD/USD outlook next 24 hours: The recovery in risky asset classes should continue until today’s London session. This corrective bounce in AUD should reach 1.0400 at least but ideally 1.0470. NZD similarly should continue its bounce to 0.8290 and then possibly 0.8350, Consumer confidence for Sep is released today.


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