Australian FOREX Daily Outlook 02/10/2007

Poor ISM manufacturing data as markets look to US Pending Home Sales

CURRENCY TRADING SUMMARY –02 OCTOBER 2007 (00:30GMT)

·U.S. Dollar Trading (USD) moved away from record lows despite looking pressured against a basket of majors. Much of the moves were on profit taking, as investors squared positions against the USD ahead of key data and Central Bank meetings during the week. The dollar index, hit a lifetime low of 77.657 before rebounding to trade at 77.973, up 0.35% percent on the day. In data news, reports showed a decline in ISM manufacturing, which was released below expectations at 52 for the month of September (Forecast: 52.5 Prior: 52.9). In U.S. share markets the NASDAQ was up 39.49 points (1.46%) whilst the Dow Jones also surged by 191.92 points (1.38%). Crude oil fell overnight, down by US$1.48 a barrel to US$80.18. Looking ahead, further indicative housing data will be scrutinized, as Pending Home Sales for the month of August. Forecast are at -2.1 %, up from the previous -12.2 %.

·The Euro (EUR) moved away from all time highs against a reprieved Dollar, despite poor US manufacturing data. With the G7 summit looming, ECB president Trichet set the tone for rhetoric ahead of the meeting, highlighting the United States “strong dollar policy”. In data news, PMI manufacturing for the month of September was released on consensus at 53.2. Overall the EURUSD traded at a low of 1.4211 and a high of 1.4284 before closing the day at 1.4238 in the New York Session. On Tuesday, markets await key data in the form of PPI (Forecast: 0.1% Previous: 0.3%) and Unemployment Rate (Forecast: 6.9% Prior: 6.9%) both for the month of August

·The Japanese Yen (JPY) received early relief on a sturdy Tankan survey, following the headline reading coming in slightly better than expectations (Actual: 23 Forecast: 22), triggering Yen buying. Any rally was short lived, as market sentiment diverted to an unlikely reaction in monetary policy tightening from the BoJ. In the latter part of the trading day, heavy support was seen for the carry trade, as the Japanese Yen fell to seven week lows against high yielding currencies such as the AUD, NZD and EUR, as confidence emanated from surging global stock prices. Overall the USDJPY traded with a range of a low 114.69 and a high of 116.08 before closing the day at 115.77 in the New York session.

·The Sterling (GBP) eased from two month highs against the dollar, after British mortgage withdrawals for house purchases fell in August to their lowest since April. However, any further downside was capped as investors bought the currency against the Japanese Yen. Overall the GBPUSD traded with a range of a low 2.0378 and a high of 2.0494 before closing the day at 2.0440 in the New York session.

·The Australian Dollar (AUD) traded above 89 cent levels on a broadly weaker dollar and a seven week high against the JPY. Overall the AUDUSD traded with a low of 0.8855 and a high of 0.8949 before closing the day at 0.8947 in the New York session. Focus now shifts to key data out of Australia, including an RBA interest rate announcement.

·The Turkish Lira (TRY) rose to a six-year high against the dollar as investors’ appetite for risk improved, spurring them to buy high-yielding currencies in so- called carry trades. The USDTRY traded with a low of 1.2000 and a high of 1.2084.

·Gold (XAU) rose, extending gains to a 27-year high, on speculation a slowing economy may force the Federal Reserve to cut interest rates further, boosting the appeal of the metal as an alternative investment to U.S. assets. XAU traded with a low of 741.70 and a high of 747.65.