Australian FOREX Daily Outlook 16/05/2007

US CPI fails to impress igniting USD selling across the board. UK CPI comes in as expected.

CURRENCY TRADING SUMMARY –16 MAY 07 (00:30GMT)

• U.S. Dollar Trading (USD) was overall weaker in the overnight session as CPI failed to ignite US dollar buying. Headline CPI rose 0.4% compared to a consensus of 0.5% for the month of April. Core CPI came in as expected at 0.2% with the annual rate coming in softer at 2.3%. The Empire Survey came in line with expectations rising to 8.0 in May from 3.8 in April. TICS data came in at US$67.6 billion compared to a consensus of US$71 billion. In US share markets, the NASDAQ fell by 21 points whilst the Dow Jones Index climbed 37 points. Crude oil in response to continued instability in Nigeria rose by US71c to US$63.17 a barrel. Looking ahead, US housing starts will be a key focus for markets with estimates of 1.48mln compared to a previous result of 1.52mln. Industrial production is expected to post a 0.3% rise for the month of April compared to a -0.2% drop in March.
• The Euro (EUR) gained against the USD on the back of softer CPI from the US and a better-than-expected GDP result. Eurozone GDP for Q1 came in at +0.6% compared to a 0.5% market consensus. Overall the EUR traded with a range of a low 1.3527 and a high of 1.3610 before closing the day at 1.3589 in the New York session. Looking ahead, Eurozone CPI is due out today with an expectation of a 1.8% result compared to 1.9% previously.
• The Japanese Yen (JPY) traded in a tight range despite weaker US CPI. Overall the JPY traded with a range of a low 120.13 and a high of 120.59 before closing the day at 120.26 in the New York session. Looking ahead, GDP is due out tomorrow together with the interest rate announcement where hgeneral consensus is that rates will be left at 0.5%.

• The Sterling (GBP) was somewhat stronger in overnight trading taking support from the weaker US numbers. UK CPI came in as expected at 0.3% for the month of April providing no surprises for the market. Overall, the GBP traded with a low of 1.9748 and a high of 1.9872 before closing the day at 1.9853 in the New York session. Looking ahead, unemployment rate is due out today with an unchanged expectation of 2.9%. The BoE Quarterly inflation report is also due out with focus on the BoE’s view of inflationary pressures going forward.
• The Australian Dollar (AUD) was well supported in the overnight trading session as no data released from Australia meant it traded on the back of events in the US. Overall, the AUD traded with a range of a low 0.8304 and a high of 0.8349 before closing at 0.8327 in the New York session.

• The Turkish Lira (TRY) strengthened from 1.3380 down to 1.3205 as the Istanbul stock exchange dropped 0.54% reversing gains from Monday.

• Gold (XAU) was bought up in as a weaker USD and stronger oil price supported the precious metal. Gold rose by US$4.40 an ounce to US$674.50.