Australian FOREX Daily Outlook 03/03/2006

MARKET SUMMARY –03MAR06 (05:00GMT)

• The Dollar fell against the major currencies overnight. The dollar fell to three-week lows against the euro following the ECB raising rates and its inflation forecast for 2007. Also weighing on the dollar was new claims for jobless benefits which rose more than expected last week Jobless claims rose from 279,000 last week to 294,000 this week, the market had expected 285,000. In other markets, US shares traded down due to disappointing sales figures from some US retail chains. The Dow Jones index was down 28pts at the close with the NASDAQ down 3pts.Crude oil prices rose sharply following concerns about global oil supply and continued threats in Nigeria and Iran. Crude oil rose by US$1.39 to US$63.36 a barrel. Looking ahead and the US ISM non-manufacturing index will be released later today. After falling in January, the non-manufacturing ISM is expected to rebound moderately in February. The expectation is for a rise to 58.0 from 56.8. As with the manufacturing survey, the key components are all above their historical averages and above 50, so are indicative of expansion.

• The Euro rallied strongly from 1.1913 to 1.2046, before closing near its highs in the New York session. The catalyst for the move was at the press conference which followed the rate hike, where Trichet caught the market off guard with relatively hawkish comments. He said that “upward risk to price stability prevail” and that monetary policy remained “stimulative” with borrowing costs still at “very low levels” The ECB raised slightly its 2006 growth forecast to 2.1% (was 1.9%) and its inflation forecast to 2.2% (was 2.1%). On the data from, Eurozone PPI was quite a bit firmer than expected, up 1.2% m/m vs. a +0.8% consensus.

• The Japanese yen traded in a range of 115.81 to 116.44 versus the dollar, before closing at 115.90 in the New York session. Today in Japan, CPI excluding fresh food rose by 0.5% y/y, which was stronger than market expectations of 0.4% y/y. The yen strengthened initially on this number but upon stripping out energy prices in addition to fresh food, core CPI only grew by 0.1% y/y. The yen quickly reversed its gains and weakened quite significantly against the dollar. Other data also had negative implications for the yen, with the unemployment rate nudging higher to 4.5% from 4.4%, and the workers’ household spending unexpectedly falling by 1.5% m/m in January against expectations of a rise of 3.5% m/m.

• The Sterling traded in a range of 1.7433 to 1.7548, before closing at 1.7535 in the New York session.

• The Aussie stayed firm overnight trading up from 0.7455 to a high of 0.7485, before closing near its highs in the New York session. In Australia today, the trade balance of goods and services was a record A$2.69 billion deficit in January, sharply wider than the A$1.3 billion shortfall forecast and a revised A$1.146 billion gap in December. Exports dropped 7 percent, while imports rose 2 percent. The record trade deficit, more than double market expectations, knocked the Aussie dollar off its overnight one-month high of $0.7487, pushing the currency as low as $0.7446.

• Gold rose overnight as investors bought the yellow metal as a safe haven following more geopolitical tension. Gold rose by US$4.60 to US$570.40 an ounce.

TECHNICAL COMMENTARY

• Euro 1.2025

Initial support at 1.1889 (Mar 1 low) followed by 1.1825 (Feb 27 low). Initial resistance is now located at 1.2133 (61.8% retracement of the 1.2324 to 1.1825 decline) followed by 1.2190 (Jan 31 reaction high).

• Yen 116.35

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 – 1.7515

Initial support at 1.7373 (Feb 28 low) followed by 1.7302 (3 month channel base). Initial resistance is now at 1.7596 (Mar 1 high) followed by 1.7643 (Feb 6 high).

• Aussie – 0.7455

Initial support at 0.7416 (March 1 low) 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).