Australian FOREX Daily Outlook 16/03/2006

MARKET SUMMARY –16MAR06 (05:00GMT)

• The Dollar was again sold off overnight against the major currencies as the market preferred to focus on capital inflows (US$ 66 bio as forecasted), which failed to cover the trade deficit for the 2^nd consecutive month. The currency market ignored a better than expected Empire State manufacturing survey. The survey was sharply stronger in March, up 10 points to 31.16, its highest level since July 2004. The Fed Beige Book painted an upbeat picture of the US economy, with activity expanding and employment growth healthy but with little fresh wage pressure. In other markets, US treasury prices fell (yields higher) in response to the solid Empire State survey. US shares rose, with the Dow Jones closing up 58pts and the NASDAQ up 15pts. Crude oil prices eased after data showed that US crude inventories rose for the fifth consecutive week. Crude oil fell by US93c to US$62.17 a barrel. Looking ahead and the US CPI and jobless claims are due later today in the States.For February, the market is expecting an increase in the headline CPI of 0.1% after a rise of 0.7% in January. Excluding food and energy, prices are expected to rise by 0.2%, keeping the annual rate at 2.1%. On jobless claims, the market is expecting 299k in new filings versus 303k in the prior week.

• The Euro rose from 1.2013 to as high as 1.2074, before closing near the day’s highs in the New York session.

• The Japanese yen traded in a range of 117.13 to 117.68 versus the dollar, before closing at 117.38 in the New York session. The BoJ’s current account reserve balance has fallen below Y30 trln following the BoJ’s ending of quantitative easing last week and is now at the lowest level since a brief dip back in August 2005. The market will pay close attention to the rate at which the BoJ drains the current account balance back down to around the Y6 trln mark as an indicator of how quickly the BoJ might ultimately lift rates.

• The Sterling traded in a range of 1.7420 to 1.7495, before closing at 1.7480 in the New York session. In the UK, there was a surprise on the downside in the labour market. The claimant count rose by nearly 15,000 against the expectations for a 3,700 increase.

• The Aussie traded in a range of 0.7374 to 0.7411, before closing at 0.7388 in the New York session.

• Gold was modestly higher in response to a softer greenback. Gold rose by US$1.40 an ounce to US$554.40 an ounce.

TECHNICAL COMMENTARY

Euro 1.2050

Initial support at 1.1939 (Mar 14 low) followed by 1.1910 (Mar 13 low). Initial resistance is now located at 1.2094 (Mar 6 high) followed by 1.2133 (61.8% retracement of 1.2324 to 1.1825).

• Yen 117.70

Initial support is located at 117.08 (March 9 low) followed by 116.89 (61.8% retracement of 115.45 to 119.21). Initial resistance is now at 119.41 (Feb 3, 2006 high) followed by 119.52 (76.4% retracement of the 121.41 to 113.41 decline).

• Pound – 1.7460

Initial support at 1.7327 (Mar 14 low) followed by 1.7230 (Mar 10 low). Initial resistance is now at 1.7509 (Mar 7 high) followed by 1.7626 (Mar 6 high).

• Aussie – 0.7370

Initial support at 0.7302 (Mar 10 low) followed by 0.7233 (Dec 27, 2005 low). Initial resistance at 0.7378 (Mar 9 high) followed by 0.7406 (Mar 7 high).