Australian FOREX Daily Outlook 22/05/2007

USD continues to rally as markets question Fed Reserve rate cut. German ZEW and Trade Balance key data out of Eurozone.

CURRENCY TRADING SUMMARY –22 MAY 2007 (00:30GMT)

• U.S. Dollar Trading (USD) gained broadly against a basket of currencies as investors continued to square off short greenback bets, amid a growing view the Fed may not cut interest rates this year. In U.S. share markets the NASDAQ rose by 20.34 points (+0.79%) whilst the Dow Jones fell by 13.65 points (-0.10%) as investors looked to take profit late in the session. Crude oil increased by 2% on Monday as continued uncertainty arose from the world’s eighth largest exporter, Nigeria. Crude rose by US$1.33 a barrel to US$66.27. Looking ahead, the Richmond Fed index will be made public today with the previous figure at -11. With little major US economic data due this week, investors are looking ahead to a meeting between US Treasury Secretary Henry Paulson and China Vice-Premier Wu Yi on Tuesday and Wednesday where they are expected to discuss trade relations, including the value of the Yuan.

• The Euro (EUR) hit a five-week low on Monday as the USD rebounded. The Euro was down 0.3% reaching its lowest level since April. Overall the EURUSD traded with a low of 1.3436 and a high of 1.3532 before closing the New York session at 1.3465. Looking ahead key data will be released in the form of the German ZEW survey with analysts forecasting a figure of 22.0 better than the previous 16.5. In other news, the EZ trade Balance for the month of March is out on Tuesday with the previous figure being -1.7 bln

• The Japanese Yen (JPY) saw the dollar reach a three-month high against the JPY, as further uncertainty of loosening by the Fed circulated, resulting in the USD rising by 0.4%. The EURJPY reached a record high of 163.94 in the Asian session of trading. Overall the USDJPY traded with a range of a low 120.92 and a high of 121.63 before closing the day at 121.46 in the New York session.

• The Sterling (GBP) continued to feel the effects of a soft retail sales figure on Friday. Furthermore, a survey of British house prices rose at their slowest rate this year over April and early May, suggesting recent rate hikes may be starting to take its toll on the housing sector. Overall, the GBPUSD traded with a range of a low 1.9678 and a high of 1.9756 before closing the day at 1.9702 in the New York session.

• The Australian Dollar (AUD) fell on Monday breaking key levels and traded under 0.8200. With the absence of data the AUD suffered on the back of reviving USD. Overall the AUDUSD traded with a low of 0.8182 and a high of 0.8249 before closing the day at 0.8220 in the New York session.

• The Canadian Dollar (CAD) hit a near three-decade high versus the US currency for a second session on Monday, boosted by a recent run of strong data and continued merger and acquisition interest Canadian organizations. Overall the USDCAD traded with a low of 1.0828 and a high of 1.0899 before closing the day at 1.0846 in the New York session.

• The South African Rand (ZAR) weakened versus the dollar, as the greenback hit a five-week high due to short-covering and lowered expectations that the US Fed would cut interest rates.

• Gold (XAU) rebounded on Monday boosted by higher energy prices. Gold rose by US$1.80 an ounce to US$663.80