Australian FOREX Daily Outlook 21/12/2005

MARKET SUMMARY – 21/12/05(03.00GMT)

• The Dollar rallied strongly overnight against the major currencies after strong housing data raised the prospect of further US rate hikes in early 2006. US housing starts surprisingly rose in November, lifting 5.3pct to a 2.123 million annual rate. Economists had tipped starts of 2.017 million. US producer prices fell by more than expected in November, dropping 0.7pct. The market expectation was for a 0.5pct decline. Core prices (excludes food &amp energy) rose by 0.1pct to stand 1.7pct higher than a year ago. The key data releases today are the final Q3 GDP number and the mortgage applications.
  

• The Euro fell from 1.1994 to 1.1840, before closing at 1.1860 in the New York session. With no major data releases in the Eurozone, the fall in Euro was due to dollar strength across the board.
  

• The Japanese yen gave back some of its recent gains, easing from JPY116.35 per US dollar to JPY117.27, before closing at JPY117.00. The market waits for the release of the minutes from Bank of Japans policy meetings held on October 31 and November 17 and 18.
  

• The Pound rose initially against the dollar and from the previous session’s three-week low against a broadly weaker euro on Tuesday, underpinned by the latest evidence that the UK housing market is picking up. A report by the Royal Institution of Chartered Surveyors (RICS) showed British house prices rose for the first time in over a year and surveyors were optimistic about further gains. The British Bankers’ Association said mortgage lending posted its biggest rise in more than a year in November. Sterling rose to 1.7682 against the dollar but lost ground on the release of stronger than expected housing data in the States and traded back down to 1.7532, before closing at 1.7560. Investors are now waiting for release of the Bank of England’s minutes later today, from its last meeting to see if there any hints of possible rate cuts down the track.
  

• The Aussie continued its slide overnight, falling from 0.7408 to 0.7319, before closing at 0.7340 in the New York session. Aussie continues to suffer from AUD/JPY profit-taking combined with a solid correction in the gold price.