Australian FOREX Daily Outlook 21/06/2007

BoE minutes surprises with a 5 to 4 vote giving a bullish GBP outlook, markets pricing in rate hike next month. Philly Fed survey set for release out of the U.S. Today.

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

• U.S. Dollar Trading (USD) was mixed against a basket of currencies as markets leaned towards Fed easing being unlikely. With a lack of data, the USD was essentially flat against the Euro, as the dollar eased from a two month long rally supported by buoyant economic data. In U.S. share markets, the NASDAQ was down 26.8 points (-1.02%) whilst the Dow Jones also fell 146 points (-1.07%). Crude oil eased last night by US$0.91 a barrel to US$68.19 on news that inventories had soared to their highest levels in nine years. Looking ahead, the Philly Fed survey is scheduled for release. Market expectations are that US growth will be confirmed nullifying any rate cut from the central bank, with the figure for June expected to climb from 4.2 to 7.

• The Euro (EUR) was flat against the USD with the absence of data. Overall the Euro traded with a range of a low 1.3406 and a high of 1.3438 before closing the day at 1.3417 in the New York session. In other news the Swedish crown surged after the Riksbank lifted interest rates and unexpectedly telegraphed two more hikes this year

• The Japanese Yen (JPY) was weighed down as investors continue to fund high yielding carry trades with the low interest bearing currency. Highlighted by the fact that the JPY fell to multi year highs against the NZD and AUD. The moves were largely attributed to dovish comments made by BoJ Governor Fukui last week who said officials wanted to be sure capital and consumer spending remained firm before pushing interest rates higher. Few analysts expect a BoJ rate rise before elections in late July. Overall the USDJPY traded near 4 ½ year highs with a low 123.10 and a high of 123.68 before closing the day at 123.58 in the New York session. Looking ahead, Key economic data will be released in the form of Japanese Trade Balance (May) with markets awaiting a figure of 448.5 bln down from the previous 926.70 bln. UPDATE: Trade Balance at 389.5 Bln for the month of May.

• The Sterling (GBP) was the biggest mover on Wednesday breaking key levels of 1.9900 as BoE minutes surprised on the upside. With investors confident that the meeting had seen a 7 – 2 vote to keep rates unchanged (2 votes for a hike), markets were pleasantly surprised as the MPC confirmed a 5 – 4 vote, with 4 members in favor of a rate hike. Hence, Sterling rose on Wednesday after minutes from a Bank of England policy meeting were perceived by the market as pointing to a UK rate rise as early as next month. Overall the GBPUSD traded with a range of a low 1.9872 and a high of 1.9947 before closing the day at 1.9945 in the New York session.

• The Australian Dollar (AUD) once again traded within a defined range as investors continued to play the level game. The AUDUSD traded with a range of a low 0.8442 and a high of 0.8475 before closing the day at 0.8459 in the New York session. With little data out of Australian markets, the AUD will look to trade technically once again ahead of the US session.

• The Turkish Lira (TRY) strengthened to its highest level against the USD since March 2006, buoyed by strong emerging market sentiment. Despite political risks before general elections next month, the Lira has firmed to more than one year highs as its high yields attract investors while risk appetite is ample. The Lira firmed 0.3% to 1.2970 whilst the currency has gained almost 9% this year.

• Gold (XAU) tumbled as oil inventories were at 9 year highs, pushing crude lower. Gold fell by US$4.70 an ounce to US$658.80 in the New York session.