Australian FOREX Daily Outlook 21/05/2007

The Central Bank of China widens the Yuan-USD trading band supporting the JPY. UK Retail Sales disappoint causing sharp sell off in GBP.

CURRENCY TRADING SUMMARY –21 MAY 2007 (00:30GMT)

• U.S. Dollar Trading (USD) was mixed on Friday as despite robust economic data released in the form of the Michigan Survey. A method of measuring consumer sentiment, markets were awaiting a figure of 86.5% (Prior: 87.1%), yet investors were surprised to see the figure released at 88.7% for the month of May. Nonetheless, markets chose to shrug of the boisterous data as investors continued to pair off recent dollar gains. In U.S. share markets, the NASDAQ rose by 19.07 points (+0.75%) whilst the Dow Jones also rose by a further 79.81 points (+0.59%). Crude oil eased ever so slightly by US$0.05 a barrel to US$64.81.

• The Euro (EUR) gained against the greenback by 0.2% on Friday irrespective of buoyant U.S. data and disappointing German PPI. Overall the EURUSD traded with a low of 1.3645 and a high of 1.3522 before closing the day at 1.3505 in the New York session. Looking ahead both ECB President Trichet and Vice-President Papademos are expected to talk today (Monday) with expectations that markets will listen attentively.

• The Japanese Yen (JPY) ended the week relatively unchanged from its previous session. Initially the JPY did strengthen as the Central Bank of China said it will widen the Yuan-Dollar trading bands and raise interest rates. It was later that the USD re-gained some of its losses as investors interpreted the move, together with rate hikes and reserve requirements, may not necessarily strengthen the Chinese Yuan. Overall the USDJPY traded with a range of a low 120.69 and a high of 121.39 before closing the day at 121.39 in the New York session.

• The Sterling (GBP) dropped to a one-month low against low against the USD as UK Retail Sales disappointed. The figure showed a decline by -0.1% for the month of April, below expectations of a growth of 0.5% (Previous was revised higher at 0.5%). Overall the GBPUSD traded with a low of 1.9702 and a high of 1.9779 before closing the day at 1.9743 in the New York session.

• The Australian Dollar (AUD) was range bound for much of Friday as weak U.S. data gave some support to the Aussie Dollar late in the session to ensure that the currency pair ended the day relatively unchanged. Overall the AUDUSD traded with a range of a low 0.8205 and a high of 0.8258 before closing the day at 0.8237 in the New York session.

• The Canadian Dollar (CAD) touched a 30 year high against the USD on Friday after data had shown domestic retail sales in March to have surged on booming automobile and gas sales. Overall the USDCAD traded with a low of 1.0878 and a high of 1.1001 before closing the day at 1.0897 in the New York session.

• Gold (XAU) rebounded on Friday from two-month lows as investors re-entered long XAU positions. Gold rose by US$4.80 an ounce to US$662.00