NOKSEK Breaks Higher
The news-wires were very quiet on Tuesday and FX markets were accordingly directionless.. There were a couple of exceptions however, NOKSEK broke higher, testing the 100dma and trading up to a high of 1.1572 on limited data or news. We have flagged NOKSEK as one of our favoured trades in recent weeks and still look for some modest further upside from here, with relative policy prospects favouring Norway. AUD also under-performed after the RBA lowered the cash rate by 25 bp to 3.25% overnight citing “international developments” which have made the growth outlook for next year look “a little weaker”. The Board still expects the peak in the mining investment boom to occur in 2013 but, significantly, the statement noted for the first time that this peak “may be at a lower level than earlier expected“. This is consistent with headlines over the past month indicating that miners are reconsidering their investment plans in light of commodity price weakness. It also supports our short AUDUSD trade recommendation which we entered on Sept. 14 for precisely this reason. There was also arguably the first sign of concern over whether other sectors of the economy will be able to compensate for slower mining growth, with the Board noting that “it will be important that the forecast strengthening in some other components of demand starts to occur” as the investment peak approaches. Elsewhere Reuters reported that Spain is ready to make a formal request for external aid, but that the German government is pressing for a delay – allegedly to avoid the inconvenience of presenting yet another individual aid request to the Bundestag when it might soon be possible to bundle it together with a parliamentary decision on Cyprus and Greece too. Nevertheless, the report suggests an aid request could be made this weekend, in time for Monday’s meeting of Eurozone finance ministers. If this happens, it is likely to provide a further boost to risk appetite given it will bring eventual ECB bond buying a step closer.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank