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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

Risk appetite retreated further, as expectations regarding Fed easing were pared back. Influential WSJ Fed watcher Hilsenrath predicted a more incremental and flexible approach to be unveiled at next week's FOMC meeting, and the market is speculating better economic data lately may temper the scope of QE2. The S&P500 is currently down 0.9%, also hurt by the core durable goods release. The CRB commodities index fell 0.9%, industrial components oil (-1.5%), copper (-2.6% and key day reversal), and gold (-1.3%) all suffering. US 10yr treasury yields continued to reverse higher, up 7bp to 2.71% on QE2 sentiment. Unsurprisingly, the 5yr auction was ordinary, 1.6bp above market with muted foreign bidding.

The US dollar index followed US treasury yields higher. EUR suffered from the better dollar sentiment, falling from an intraday peak of 1.3853 to 1.3734. NOK held its ground around 5.90 after the Norwegian central bank kept the policy rate on hold at 2.00%, noting low inflation and a bumpy recovery. The yen outperformed, USD/JPY ranging between 81.50 and 82.00. AUD underperformed after yesterday's surprisingly muted inflation print, and drifted lower from the Sydney close of 0.9745 to 0.9652. NZD followed, from 0.7480 to 0.7405. AUD/NZD was contained between 1.3000 and 1.3050 following a vicious plunge after the Australian data.

AUD/USD and NZD/USD outlook next 24 hours: AUD's selloff is overdone on intraday (hourly) measures, so some consolidation around 0.9700 is likely today. NZD is testing important 0.7400 area support, and could break lower if the RBNZ's statement today is more dovish than it was in September.

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