Australian FOREX Daily Outlook 05/03/2008

RBA hike as the BoC cuts. XAU tumbles on profit taking

CURRENCY TRADING SUMMARY – 05 MARCH 2008 (00:30GMT)

·U.S. Dollar Trading (USD) was mixed versus a number of majors yesterday tracking data and rate outcomes of other central banks for a change. In events specific to the US market, Fed Chairman Ben Bernanke urged lenders to expand mortgage write-downs for borrowers whose home values have declined and said that more must be done to cease foreclosures. While, “efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done.” Also, Bernanke sees “delinquencies and foreclosures likely will continue to rise for a while longer.” In U.S. share markets the NASDAQ was slightly higher by 1.68 points (+0.07%) whilst the Dow Jones was down by 45.10 point (-0.37%). Crude oil fell by US$2.60 a barrel to US$99.85 mainly on profit taking. Looking ahead, Services ISM will be key to the market today whilst ADP employment often considered a preview to the Non Farm Payrolls data on Friday is also scheduled for release today.

·The Euro (EUR) was once again range bound, trading higher during the day despite the Euro zone policy makers pressuring Washington to do more to halt the dollar’s decline. On the data front Eurozone PPI data came in on expectations of 0.8% for the month of January. Overall the EURUSD traded with a low of 1.5174 and a high of 1.5250 before closing the day at 1.5210 in the New York session. PMI Services and Retail Sales are key figures for the EZ on Wednesday with forecast at 52.3 and 0.4% respectively.

·The Japanese Yen (JPY) strengthened against the dollar, as investors’ concern over the US slipping into recession prompted carry trade to be fled. The Currency gained for a sixth straight day, approaching a three-year high, as stocks fell on speculation banks will have to write off more mortgage-related debt on the back of Bernanke’s prompt during his speech. Overall the USDJPY traded with a low of 102.65 and a high of 103.57 before closing the day at 103.32 in the New York session.

·The Sterling (GBP) strengthened against the dollar even after a private report showed construction, which accounts for 6 % of Britain‘s economy, grew at its slowest pace in February. Traders pared bets on how far the BoE will cut interest rates this year which also added to the pound gain. Overall the GBPUSD traded with a low of 1.9827 and a high of 1.9892 before closing the day at 1.9862 in the New York session.

·The Australian Dollar (AUD) had a data filled day first with Retail Sales figures for the month of January coming in unchanged from the previous at 0.0%. The Aussie Dollar sell off was limited ahead of the much anticipated RBA rate announcement in which board decided to lift the cash rate to 7.25% (25 basis point hike), the highest level in 12 years. Nonetheless the AUD did suffer on the back of tentative comments in which policy makers noted “some moderation in household demand is beginning to occur” in which “the extent of the moderation was uncertain. In other news the current account deficit widened to a record $19.4 billion from it previously revised $16.4 billion. Overall the AUDUSD traded with a low of 0.9220 and a high of 0.9371 before closing the day at 0.9274 in the New York session. Looking ahead, key data in the form of Quarter Four GDP is out on Wednesday morning, with expectation at a decline to 0.8%/3.9% from the previous 1%/4.3%.

·The Canadian Dollar (CAD) fell to the lowest in more than a week after the central bank reduced the benchmark interest rate a half-percentage point and signaled it probably will cut again to help the economy cope with a slowdown in the U.S. Overall the USDCAD traded with a low of 0.9854 and a high of 0.9978 before closing the day at 0.9950 in the New York session.

·Gold (XAU) fell sharply on profit taking having traded at record highs the previous session. XAU traded with a high of 987.50 and a low of 959.35.

TECHNICAL COMMENTARY

·Euro – 1.5200

Initial support at 1.5074 (Feb 28 low) followed by 1.4971 (Feb 27 low). Initial resistance is now located at 1.5275 (Mar 3 high) followed by 1.5304 (1.4311 plus 0.618 of 1.3361 to 1.4967).

·Yen – 103.30

Initial support is located at 102.61 (Mar 3 low) followed by 101.67 (Jan 1995 reaction low). Initial resistance is now at 104.97 (Jan 23 high) followed by 105.39 (Feb 29 high)

·Pound – 1.9845

Initial support at 1.9763 (Feb 28 low) followed by 1.9644 (Feb 22 low). Initial resistance is now at 1.9975 (Feb 27 high) followed by 2.0000 (Round Number)

·Australian Dollar – 0.9375

Initial support a 0.9122 (38.2% retracement of the 0.8513 to 0.9499 advance) followed by 0.9006 (50.0% retracement of the 0.8513 to 0.9499 advance). Initial resistance is now at 0.9499 (Feb 28 high) followed by 0.9555 (Open + Last week range * 1.618)

·Gold – 976.10

Initial support at 953.48 (Feb 28 low) followed by 949.00 (Feb 27 low). Initial resistance is now at 988.15 (Mar 4 high) followed by 1000.00 (Round Number)