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Westpac Global Markets Strategy Group: Morning FX Thoughts - NZ Edition

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Fuseworks Media
Fuseworks Media
Westpac Global Markets Strategy Group: Morning FX Thoughts - NZ Edition

US equities rebounded yesterday, after a two-week battering, helping commodities and risky currencies do the same. Strong manufacturing surveys in the US, Eurozone, and UK sparked investors into buying at the opening bell and holding those gains into the session.

The US report showed manufacturing expanded at the fastest pace since August 2004, and new orders remained strong relative to inventories, indicating further strength ahead. Indeed, ISM chairman Ore said the survey pointed to a V-shaped recovery. The S&P500 is up 1.1%.

Commodities rose on the strong manufacturing reports, oil +1.5%, gold +2.1%, and copper +1.2%. US treasuries were sold on the bullish news, 10yr notes up 7bp and the curve 2bp steeper. The US dollar weakened modestly as equities rallied, but held its ground after the factory data.

EUR bounced from its over sold state during the Asian session, and well before its own factory data, rising to 1.3935. The US report then saw it slip back below 1.3900, before rising to 1.3920 where it current sits.

USD/JPY rallied on the US data, from 90.40 to 90.90.

AUD was briefly spooked lower to 0.8789 after a report that Chinese authorities were concerned credit was being "illegally" allocated to the property and equity markets, but equities sentiment propelled it to 0.8909. NZD also rebounded, from just under 0.7000 to 0.7091.

AUD/NZD fell from 1.2600 to 1.2550.

AUD/USD and NZD/USD outlook today: the currencies need to rise in the short term to alleviate their oversold conditions. AUD should bounce to somewhere between 0.8920 and 0.9100, the NZD to the 0.7100-0.7270 area.

NZD is set to form a bullish outside-up day at the NY close, adding technical evidence to the view. The RBA meeting today, and tonight's Fonterra auction pose major event risk.

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