Australian FOREX Daily Outlook 11/06/2007

USD rallies on the back of surging yields and tightening of trade deficit. Japan set to release GDP data as UK publishes PPI.

CURRENCY TRADING SUMMARY –11 JUNE 2007 (00:30GMT)

• U.S. Dollar Trading (USD) rebounded broadly against a basket of majors as US treasury yields widened their advantage over other major government bonds amid reduced expectations for interest rate cuts by the Federal Reserve. Futures markets are now anticipating rates to remain unchanged for 2007 and much of 2008.Added to this a sell off in global stocks and bonds, saw liquidation support the dollar. In data specific news, the greenback was also supported by a better than expected Trade Balance figure which indicated that the deficit had indeed narrowed to -58.5 bln than previous -62.39 bln (revised higher). The USD climbed to a two-month high against the Euro, up 0.5%. In U.S. share markets the NASDAQ rose by 32.16 points (+1.27%) whilst the Dow Jones also rose by 157.66 points (+1.19%). Crude oil was sold off to end Friday, dropping by US$2.16 a barrel to US$64.77.

• The Euro (EUR) dropped by 0.5% against the USD as German industrial output released showed the biggest monthly drop in almost seven years, giving speculation that the EZ’s largest economy may be on the decline. Overall the EURUSD traded with a range of a low 1.3320 and a high of 1.3435 before closing the day at 1.3362 in the New York session.

• The Japanese Yen (JPY) fell against the USD on the back of surging treasury yields. The USDJPY climbed 0.6% amid reduced expectations of interest rate cuts by the Federal Reserve. In other news Minister of Finance Watanabe stated that there were no immediate risks of unwinding of carry trades. Overall the USDJPY traded with a range of a low 120.77 and a high of 121.84 before closing the day at 121.68 in the New York session. Looking ahead GDP data for the first quarter is expected to be confirmed at 0.8% for the q/q (Previous: 0.6%) and 3.1% for y/y.

• The Sterling (GBP) continued to be sold off pushing the pound down to a two month low against the USD. Furthermore the GBP slipped to a one-month against the JPY as risk appetite diminished for the high yielding currency. Overall, the GBPUSD traded with a range of a low 1.9624 and a high of 1.9991 before closing the day significantly down at 1.9667 in the New York session. Looking ahead key data in the form of Core PPI output is scheduled for release with markets awaiting a figure of 2.3% for the y/y (Previous: 2.4%)

• The Australian Dollar (AUD) was range bound for much of Friday, bouncing off key levels. Despite a greenback rally the AUD held firm to regain earlier losses and close higher than the previous session. Overall the AUDUSD traded with a range of a low 0.8369 and a high of 0.8448 before closing the day at 0.8430 in the New York session. Looking ahead, thin trading of the Aussie dollar is expected on Monday as markets will be closed.

• The South African Rand (ZAR) reversed its earlier session losses against the dollar, while government bonds also clawed back some ground.

• The Canadian Dollar (CAD) briefly touched a one-week low, but rebounded as strong housing and trade reports outweighed the impact of jobs data that missed expectations. Overall the USDCAD traded with a range of a low 1.0596 and a high of 1.0713 before closing the day at 1.0612 in the New York session.

• Gold (XAU) continued to tumble on Friday as the Dollar firmed. XAU reached a three month low dropping 2.2% to close at US$653.80 an ounce.