Forex Flash: GBP/AUD now related to 2-year swaps – Westpac

The relationship between the GBP/AUD and 2 year swap spreads has been fairly useful historically, though it started to break down in mid-2011 as markets began to price in RBA easing but AUD suffered little sustained damage, especially as the Bank of England felt compelled to ramp up QE again in response to domestic weakness in 2011. The latest sell-off in GBP/AUD has not been backed by moves in the two-year spread. The minutes from the February RBA meeting reinforced its message that muted inflation means it has “scope” to cut rates again if demand falls short of expectations.

“The key to Westpac’s base case of a March rate cut is the capex survey on 28 February, especially the investment intentions for 2013/14. Markets are currently pricing only 25% chance of a March cut but have -37bp priced in total.” Predicts the Westpac Analyst Team.

Feb 20, 2013

Forex Flash: AUD/CAD pausing ahead of next leg higher – TD Securities

TD Securities analysts see the AUD/CAD market pausing ahead of the next leg higher after the sharp rise earlier in the week. "The AUD/CAD is finding good support intraday in the upper 1.04 area and gains through 1.0485 area over the balance of the session would point to a rally extension", wrote analysts Shaun Osborne and Greg Moore. "We still rather think the AUD looks a little rich as it gets closer to the 1.06/1.07 area but that will not necessarily preclude further gains in the short run", they added.

Forex Flash: 10-year US treasuries eye FOMC – RBS

According to William O'Donnell at RBS, “We continue to see a near-term 1.70% to 2.11% range for 10-year US Treasuries. Key support remains at 2.11% for 10yrs, while the first resistance is at 1.90% - 1.93%. We recommend to watch for the ascending bear channel lines (1.93% in 10s and 3.10% in bonds) – breaks through could extend the rally while a close above 2.11% in 10s opens up 2.30%.”