Australian FOREX Daily Outlook 23/05/2007

USD continues to rebound as US-China two day meeting begins. German ZEW survey fails to support the Euro.

CURRENCY TRADING SUMMARY –23 MAY 2007 (00:30GMT)

• U.S. Dollar Trading (USD) continued to rebound against a basket of currencies on Tuesday, rallying to a six-week high as traders continued to pare back expectations of a Fed interest rate cut this year. In data specific news the Richmond Fed index was released at -10 (Previous: -11). Investors focused on the first day of a two-day meeting between US Treasury Secretary Henry Paulson and China Vice-Premier Wu Yi in Washington. In early remarks, Paulson warned that Washington was growing increasingly impatient for Beijing to speed up policy changes that would help narrow the record US trade deficit. The US argues that an undervalued Yuan gives China an unfair trade advantage and is a key driver of the deficit. In U.S. share markets the NASDAQ rose by 9.23 points (+0.36%) whilst the Dow Jones fell by 2.93 (-0.02%). Crude oil fell by US$1.30 a barrel to US$64.97 as expectations that supplies would show an increase in tomorrow’s weekly inventories report. Looking ahead, Wednesday’s Mortgage Index and MBA purchase could give an early indication to tier one housing data out on Thursday.

• The Euro (EUR) eased despite a strong reading of the German ZEW survey which rose to an eight-month high in April failed to give in support to the currency. The Index was released on consensus at 24 (Previous: 16.5), yet was shrugged of by investors expiring their long EURUSD positions. Overall the EURUSD traded with a low of 1.3439 and a high of 1.3478 before closing the day at 1.3452 in the New York session. Looking ahead, Industrial Orders for the month of March are out of the Euro Zone on Wednesday with expectations at 1.1% for the m/m (Prior: -0.7%) and 6.9% for the y/y (Prior: 4.7%)

• The Japanese Yen (JPY) once again traded near a three-month peak on the back of further diminishing expectations of an interest rate cut by the Federal Reserve later on this year. As always plenty of attention was also placed on the first day of the US-China economic meeting. The USDJPY traded with a range of a low 121.21 and a high of 121.61 before closing at 121.55 in the New York session.

• The Sterling (GBP) rose against the dollar, up from six-week lows reached in the previous session. Overall the GBPUSD traded with a low of 1.9704 and a high of 1.9749 in the New York session. Looking ahead, markets will be awaiting Wednesday’s BoE minutes for confirmation of rate hike expectations. The BoE MPC minutes are expected to confirm that eight members voted for this months rate hike while one voted for an unchanged rate. Markets are pricing another rate hike by September, with further speculation of possibly a rate of 6% by year end.

• The Australian Dollar (AUD) traded in a defined range for the second successive session on Tuesday as the USD continued its rebound. The AUDUSD traded with a range of a low 0.8193 and a high of 0.8230 before closing the day at 0.8197 in the New York session.

• The Canadian Dollar (CAD) hit a fresh 29.5 year high against the US dollar, boosted by recent strength in oil prices and strong domestic data. Overall the USDCAD traded with a range of a low 1.0830 and a high of 1.0870 before closing at 1.0855 in the New York session.

• The South African Rand (ZAR) weakened versus the dollar and could further reverse recent gains as niggling worries about the current account deficit resurfaced

• Gold (XAU) fell by US$3.90 an ounce to US$659.90 due to lower oil prices