Australian FOREX Daily Outlook 02/05/2007

Strong US ISM Manufacturing gives initial support to the dollar, as GBP remains steady following weaker PMI manufacturing data. RBA keep interest rates unchanged at 6.25%

CURRENCY TRADING SUMMARY –02 MAY 07 (23:30GMT)

• U.S. Dollar Trading (USD) rallied as reports showed that manufacturing in the US had grown at its fastest pace in over a year. As ISM manufacturing came in better than expected at 54.7 (Forecast: 51), economists were quick to warn that the reprieve in the USD may be short term before bearish sentiment may continue. In US share markets, the NASDAQ rose by 6.44 points (0.25%) whilst the Dow Jones rose by 73.23 points (0.56%). Crude oil fell sharply by US$1.31 a barrel to US$64.40. Looking ahead with little data due, Secretary Paulson is scheduled to speak on the topic of China’s economy and trade issues, which markets will listen for attentively following recent trading rifts between the two nations.

• The Euro (EUR) most markets of the EZ nations were closed on Tuesday due to a public holiday. Overall the Euro traded with a range of a low 1.3590 and a high of 1.3674 before closing the day at 1.3617 in the New York session. Looking ahead, normal service is set to resume with release of Unemployment rate,as markets are expecting a figure of 7.2% slightly better than the previous 7.3%. In other news, Manufacturing PMI is also scheduled for release with economist predicting that activity should have grown slightly for the month of April to 55.7 (Prior: 55.4).

• The Japanese Yen (JPY) reached a nine week high against the USD, as Japanese markets were closed. Furthermore, the Euro reached a fresh new high of 163.31. Overall, JPY traded with a range of a low 119.07 and a high of 119.86 before closing the day at 119.72 in the New York session.

• The Sterling (GBP) saw PMI manufacturing data come in slightly weaker than expected at 53.9 (Forecast: 54) with the previous revised lower to 54.2. Despite the weak release, the sterling remained relatively unchanged against the USD from previous sessions close, with CBI sales survey coming in higher than expected at 44 (Forecast: 25). Overall the GBP traded with a range of a low 1.9981 and a high of 2.0074 before closing the day at 1.9996. Looking ahead, BoE Governor King will speak on Wednesday, as markets eagerly anticipate any reference to state of inflationary pressures and UK economic growth, despite a rate hike of 25 basis points being fully priced in next week.

• The Australian Dollar (AUD) was range bound for much of Tuesday session ahead of the RBA interest rate announcement. Overall the AUD traded with a range of a low 0.8274 and a high of 0.8328 before closing the day at 0.8287. As briefly mentioned the RBA is scheduled to make an announcement on interest rates on Wednesday, with much of markets sentiment shifting form a rate hike to an unchanged figure of 6.25% on the back of recent poor data in the form of CPI and PPI. UPDATE: RBA rate announcement 6.25 % (unchanged)

• Gold (XAU) fell sharply on the back of cheaper oil prices, dropping by US$6.20 an ounce to US$677.30