Australian FOREX Daily Outlook 02/03/2006

MARKET SUMMARY –02MAR06 (05:00GMT)

• The Dollar was mixed against major currencies overnight. However, the stronger than expected ISM manufacturing index reading lifted the dollar midway through the New York session. The US ISM manufacturing index rose more than expected to 56.7 in February from 54.8 in January. The index showed broad underlying strength with employment and new orders both showing healthy spikes. US construction spending rose 0.2% in January the market expected 1.1% growth. US consumer spending surged 0.9% in January, slightly below expectations.The core personal expenditures index rose by a tame 0.2% in January. In other markets, US shares rebounded overnight after sustaining significant losses on Tuesday. The Dow Jones was up 60pts and the NASDAQ was up 31pts. Crude oil rose overnight following renewed threats against oil facilities in Nigeria. Crude oil rose by US56c to US$61.97 a barrel. Looking ahead and jobless claims are due later today in the States. The market is expecting 285k in new filings, up from 278k in the prior week.

• The Euro traded in a range of 1.1890 to 1.1975, before closing at 1.1925 in the New York session. Yesterday in the Eurozone, manufacturing PMI was 54.5, up from 53.5 in January and better than market expectations of 54.1. The number is consistent with other recent strong national surveys. It is important to note that the employment component improved, with the German employment component notably above 50 and the highest it has been since January 2001. Eurozone unemployment rate for December was revised down to 8.3% from 8.4% originally reported. The flash estimate of February CPI met expectations for a 2.3% rate, down only slightly from January’s 2.4%. Looking ahead and the market will focus on the ECB rate announcement later today. A 25bp hike is expected but of more importance with be the ensuing press conference where the market will look for clues on the ECB’s future intentions regarding rates.

• The Japanese yen traded in a range of 115.72 to 116.33 versus the dollar, before closing at 116.10 in the New York session. The Japanese yen remain supported by BOJ tightening speculation and China revaluation hopes. Press reports have now been speculating that the BOJ may move as early as next week’s board meeting to start cutting the level of excess liquidity and thus begin ending quantitative easing.

• The Sterling traded in a range of 1.7462 to 1.7595, before closing at 1.7500 in the New York session. The headline UK manufacturing PMI index eased to 51.7 in February from an upwardly revised 51.8 in January. Analysts had forecast a reading of 52.

• The Aussie managed to grind higher from 0.7421 to 0.7466, before closing at 0.7450 in New York. Today in Australia, retail sales rose by a strong 0.8 percent in January, easily beating market forecasts of 0.3% and suggesting consumer spending may be reviving after months of weakness.In contrast, other data today showed approvals for building new homes fell 1.9 percent in January when analysts had looked for a 1.5 percent bounce, dealing a setback to hopes for a recovery in the housing market. The currency was unchanged on these data releases.

• Gold rose in overnight trade due to investment buying. Gold rose by US$1.90 to US$565.80 n ounce.

TECHNICAL COMMENTARY

• Euro 1.1920

Initial support at 1.1825 (Feb 27 low) followed by 1.1800 (76.4% retracement of the 1.1638 to 1.2324 advance). Initial resistance is now located at 1.1976 (Feb 20 high) followed by 1.2027 (Feb 10 high).

• Yen 116.25

Initial support is located at 115.45 (Mar 1 low) followed by 114.82 (76.4% retracement of the 113.41 to 119.41 rally). Initial resistance is now at 117.17 (Feb 24 high) followed by 118.54(Feb 23 high).

• Pound – 1.7490

Initial support at 1.7373 (Feb 28 low) followed by 1.7292 (3 month channel base). Initial resistance is now at 1.7643 (Feb 6 high) followed by 1.7685 (61.8% retracement of the 1.7937 to 1.7278 decline).

• Aussie – 0.7455

Initial support at 0.7390 (61.8% retracement of the 0.7590 to 0.7343 rise) followed by 0.7343 (Feb 22 low). Initial resistance at 0.7496 (61.8% retracement of the 0.7590 to 0.7343 decline) followed by 0.7590 (Jan 31 high).