Australian FOREX Daily Outlook 18/06/2007

Poor inflationary data ends USD rally, as CPI rises at it slowest rate since March 2006. BoJ ambiguity causes the USDJPY to reach a fresh 4.5 year high.

CURRENCY TRADING SUMMARY –18 JUNE 2007 (00:30GMT)

• U.S. Dollar Trading (USD) eased against a basket of majors, dropping 0.4% against the Euro. The USD suffered on the back of Core CPI data showing a rise at the slowest pace in May since March 2006. Markets had expected a figure of 0.2% for the month, yet the data came in worse at 0.1%. Further more, Factory output had slowed and Consumer confidence declined sharply ceasing recent dollar rallies on the back of U.S. Treasury Yields climbing to five year highs. In other data news, the U.S. current account deficit widened in the first quarter but by less than expected to $192.58 billion from $187.94 billion in the fourth quarter of last year. However, the drop in the USD was somewhat capped as a separate report showed long-term net capital flows into the United States rose in April to $84.1 billion, the highest since January, driven by record net foreign purchases of U.S. stocks by private investors. However, the March numbers were revised down by 16.4Bln. In U.S. share markets, the NASDAQ rose by 27.30 points (+1.05%) whilst the Dow Jones was also up by 85.76 points (+0.63%). Crude oil rose by US$0.35 a barrel to US$68.00 further boosted by tensions in the Middle-east.

• The Euro (EUR) gained by 0.4% against the USD as poor inflationary data gave little support to the greenback. In data news, the EZ Trade Balance came in worse than expected at 1.8 bln for the month of April worse than the previous which was revised higher at 7.6 bln. Overall the EURUSD traded with a low of 1.3306 and a high of 1.3388 before closing the day at 1.3378 in the New York session. Looking ahead, ECB president Trichet is scheduled to speak today, which is sure to be paid attention to.

• The Japanese Yen (JPY) touched a fresh 4.5 year high against the USD for the third consecutive session as the BoJ indicated no hurry to raise interest rates in the near future by keeping rates on hold at 0.50% on Friday. Overall the USDJPY traded with a range of a low 122.88 and a high of 123.66 before closing the day at 123.44 in the New York session.

• The Sterling (GBP) moved on the upside against a weaker dollar. Overall, the GBPUSD trade d with a range of a low 1.9690 and a high of 1.9778 before closing the day at 1.9751 in the New York session.

• The Australian Dollar (AUD) rebounded on Friday on the back of a broadly weaker USD trading over key 0.84 levels once again. The AUDUSD traded with a range of a low 0.8355 and a high of 0.8417 before closing the day at 0.8415 in the New York session.

• The South African Rand (ZAR) firmed against the dollar on Friday, but analysts said it remained vulnerable to international developments from which it will take its lead next week. Market players said the local unit would continue to look abroad for direction, remaining volatile and vulnerable to changes in U.S. interest rate expectations.

• Gold (XAU) rose by US$2.80 an ounce to US$658.70 on the back of a weaker dollar, higher oil prices, and an increase in violence in the Middle-east