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Morning FX thoughts - 23 Nov'11

Westpac Global Markets Strategy Group

Wednesday 23rd November 2011

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IMF stabilises markets. Risk markets were testing recent lows around midday NY, earlier headlines on Europe discouraging.

German Chancellor Merkel said there was no new bazooka to solve the crisis, certainly not the ECB, and the EU said unless Greek politicians back the agreed fiscal reforms (conservative leader Samaris refuses to do do), it would withhold the next EUR8b tranche of aid, and that would probably result in Greece defaulting in 20 days when its next bond payment is due.

The IMF helped markets reverse course when it announced a revamped program of short term credit lines to member countries designed to be more quickly available if needed. The S&P500 bounced by around 1% on this to be unchanged on the day.

The CRB commodities index is up 0.7%, with oil +1.5%, copper +0.5%, and gold +1.6%. US 10yr treasury yields are 2bp higher at 1.98%, earlier as low as 1.94%. The IMF news came after the European close and peripherals there continued to struggle, Belgium’s 10yr yield notable for a 26bp rise to 5.08% - a post-2002 high – while Greece rose 68bp and Italy rose 16bp.

The US dollar index was directionless between 78.00 and 78.40. EUR similarly consolidated between 1.3480 and 1.3570. USD/JPY ranged between 76.84 and 77.14.

AUD slipped with equities from the upper bound of its 24hr range at 0.9899 to 0.9813 before firming to 0.9861 on the IMF news. NZD slipped from 0.7514 to 0.7441 and then bounced to 0.7488. AUD/NZD continued a 5-day period of consolidation between 1.3140 and 1.3210.

AUD/USD and NZD/USD outlook next 24 hours: AUD traced a well-defined range of 0.9810-0.9900 yesterday and we await a break of this to determine near-term direction. We remain bearish for the weeks ahead. NZD continues to test the 0.7450 major support area which has been stubborn. A break below 0.7440 will flag further large declines. China PMI (HSBC) and Australian Q3 construction are due today.


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