Australian FOREX Daily Outlook 10/05/2007

FOMC keep rates unchanged giving USD some support ahead of BoE and ECB interest rate announcements. US set to release Trade Balance, Aussie Unemployment rate.

CURRENCY TRADING SUMMARY –10 MAY 07 (23:30GMT)

• U.S. Dollar Trading (USD) rallied against a handful of majors on Wednesday following the Federal Reserve decision to keep interest rates unchanged and stated that it was concerned that inflationary pressures will fail to moderate, keeping the federal funds rate target at the level it has held since June 2006 at 5.25%. As a result futures have now priced in a single interest rate cut in 2007. In U.S. share markets, the NASDAQ rose by 4.59 points (0.18%) whilst the Dow Jones also rose by 53.8 points (0.4%). Crude oil rose by US$0.08 a barrel to US$61.63. Looking ahead a heavy data day is expected for the U.S. post FOMC announcement with the Trade Balance expected to widen from the previous -58.4 bln to -60 bln as forecasted. Further more initial Jobless claims is expected to rise to 315k from the previous 305k adding further pressure to a slowing labour market. In other news, the Federal Budget for the month April will be released on Thursday with forecasts of 136.7 bln (Previous: 118.84 bln)

• The Euro (EUR) slid against the USD on Wednesday, falling by 0.1% after the FOMC rate decision. Overall the EUR traded with a low of 1.3519 and a high of 1.3567 before closing the day at 1.3527 in the New York session. Looking ahead, the ECB is set to make an announcement on interest rates, although markets have priced in an unchanged rate, accompanying statements made by President Trichet will give further indication as to when a rate hike may materialize.

• The Japanese Yen (JPY) traded in a fairly narrow range. The USDJPY traded in a range of approximately 50 pips, on the back of USD, EUR, and GBP moves. Overall the JPY traded with a range of a low 119.63 and a high of 120.15 before closing the day at 120.09 in the New York session.

• The Sterling (GBP) rallied by 0.3% against the USD during Wednesday’s trading. Overall the GBP traded with a range of a low 1.9884 and a high of 1.9998 before closing the day at 1.9942 in the New York session. Looking ahead a heavy data day is expected with the BoE set to make an announcement on the interest rates, as markets have priced in rate hike by 25 basis points. Furthermore the UK Trade Balance is also released with a slight narrowing of the deficit expected (Forecast: -6.68 bln, Previous: -6.79 bln)

• The Australian Dollar (AUD) eased from previous session gains above 0.8300 levels to trade sideways ahead of FOMC announcement. Overall the AUD traded with a range of a low 0.8273 and a high of 0.8304 before closing the day at 0.8275 in the New York session. Looking ahead, the Unemployment rate will be released out of Australia today, with market expectations forecasting an unchanged figure of 4.5%.

• The Swedish Krown (SEK) received support as the Swedish Central Bank seems certain to raise the rate to 3.5% in June.

• Gold (XAU) fell by US$4.90 an ounce to US$682.50 largely on the back of profit taking.