SCOREBOARD: Dollar drive

The Australian dollar pushed higher as general optimism on Europe lifted forex and commodities.

The Australian dollar pushed through the 1.05 mark early last night and looked as though it was firmly on the path to 1.06 for much of the session. That said, having hit a high of 1.0573, the currency managed to ease off a bit, now sitting comfortably at 1.0533.

The bid for Aussie seems to be a part of a generalised euro-optimism bid in the forex and commodity space. Recall that if Europe can stabilise the crisis, there really aren’t too many headwinds to global growth this year – even with a European recession. The good news is that it appears Greece is close to a deal with its creditors (the Greek Finance Ministry says things will be finalised by February 13) and the ECB’s LTRO has done much to bring down yields for Italy and Spain – down again last night with 2-years off 27 and 15 basis points respectively to 3.58 per cent and 3.17 per cent, while the 10-years were off 14bps and 4bps to 6.1 per cent and 5.46 per cent. Euro then shot up to 1.3017 from 1.2894 at 1630 AEDT and was up 160 pips at the high to 1.0353.

As for commodities, gains were broad-based, copper rising 1.5 per cent, silver up just over 2 per cent, while gold is up $5 to $1677. Crude was 1.3 per cent higher on WTI ($99.6), while Brent was up 0.7 per cent ($110.6).

The flow through to equities was limited in the US, although Europe had another decent session. The Dax was up 0.5 per cent, the CaC up 0.5 per cent and the FTSE up 0.9 per cent, boosted by a solid bid for energy and basic material stocks. I’m not really sure what is weighing on Wall Street – perhaps it’s because they’ve had such a good run already, the S&P looking like it will have the best January run since 1997. Whatever the case, the S&P, having been up 0.5 per cent at the high (shortly after the open), went offered and gave back all of those gains and some, being down 0.4 per cent at the low. As I write, the index is 0.09 per cent lower (1314) with a modest bid for energy, tech and utilities being offset by falls in telcos, healthcare, consumer goods and industrials (among others). The Dow is off just over 8 points to 12711, the Nasdaq is 0.1 per cent lower (2783), while our own SPI is up a modest 0.2 per cent at this stage (4199).

US Treasuries then sold off, the curve steepening as the 2-year yield did nought (0.23 per cent), while the 10-year yield rose just over 5bps to sit at 2.062 per cent (0.09 at the high). The 5-year was then up just over 3bps to 0.9 per cent (0.925 per cent at the high). Aussie futures followed suit, 3s down 3 ticks to 96.71, while 10s were down 7 ticks to 96.010.

In other news and data, (of which there wasn’t much), Germany suggested that Europe should combine the two rescue funds set up as a ‘firewall’ which is something that has been flagged before but struck down – I'm not sure it's all that material. The ECB then said they bought fewer bonds last week as market tensions eased. The Bank bought €2.24 billion of bonds last week, down from €3.766 billion the week before and a peak of €22 billion in August last year. Finally, the EU has agreed to ban Iranian oil, although current contracts will be honoured.

As far as data and news is concerned there really isn’t any for Australia or NZ today. India’s Reserve Bank meets but isn’t expected to change any settings. Elsewhere, lunar New Year celebrations mean that many markets throughout the region will be closed. Tonight we see the European PMIs for January and then European industrial orders. For the US, the only data we get will be the Richmond Fed manufacturing activity index (January).

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