Australian FOREX Daily Outlook 24/05/2007

BoE hint at future rate hikes giving support to the GBP. Japanese Trade Balance and German IFO key ahead of US Durable Goods and Home Sales.

CURRENCY TRADING SUMMARY –24 MAY 2007 (00:30GMT)

• U.S. Dollar Trading (USD) fell against a basket of majors as positive data from other markets weighed heavy on the USD. Despite mortgage data coming in better than expected for the USD, markets chose to shrug it off cautiously ahead of Thursday’s key housing data release. In other news, US Treasury Secretary Henry Paulson said Chinese officials agreed on the need for more flexibility in the Yuan currency, but he suggested differences remain over the pace of appreciation. In U.S. share markets, the NASDAQ was down 10.97 points (-0.42%) whilst the Dow Jones was also down by -14.30 points (-0.11%). Crude oil rose by US$0.26 a barrel to US$65.77 as stocks rose by more than the forecasted figure yet remained below average supplies. Looking ahead a heavy data day is expected out of the U.S. starting with the release of Durable Goods Orders for the month of April (Forecast: 1% Prior: 3.7%). In other data out of the U.S. Jobless Claims will also be released be made public with analysts awaiting a figure of 305k worse than the previous 293k. Finally on the data front Home Sales for the month of April will also be released (Forecast: 0.86 mio Prior: 0.858 mio), with markets paying key attention due recent focus on the housing sector.

• The Euro (EUR) bounced on Wednesday as EZ Industrial Orders gave support to the Euro, which suggested that Interest rates may rise more than previously thought. As a result the Euro was up 0.3% as markets are already pricing in two more quarter point rate rises from the ECB this year to 4.25%. Overall, the EURUSD trade with a range of a low 1.3418 and a high of 1.3502. Looking ahead, the German IFO survey is out today with expectation of another record high of 108.8 expected (Previous:108.6)

• The Japanese Yen (JPY) barely moved against the USD but eased against other high yielding currencies AUD, GBP and EUR. Low volatility and buoyant equity markets around the world have encouraged investors to keep selling yen for higher-yielding assets in so-called carry trades. Overall the JPY traded with a range of a low 121.34 and a high of 121.85. Looking ahead, Trade Balance is made public today with expectations of 953.7 Bln figure for the month of April m/m (Previous: 1633.5 bln). UPDATE: Trade Balance: 926.70 bln)

• The Sterling (GBP) surged against the USD as BoE minutes showed that, contrary to expectations, the central bank’s decision to raise rates this month was unanimous, and some members even had considered a half percentage point raise. Short sterling futures are now pricing in an around 60% chance of the next hike materializing in June MPC meeting, and have fully priced in rates of 5.75% by September. They are also giving a 50% chance of them reaching 6% by year end. Overall the GBP traded with a range of a low 1.9719 and a high of 1.9894

• The Australian Dollar (AUD) was sideways trading once again on the back of little data. The AUD traded with a low of 0.8205 and a high of 0.8260 before closing at 0.8240 in the New York session.

• The Canadian Dollar (CAD) hit a 29.5 year high of 1.0817 to the US dollar, extending the rally driven by rising oil prices and an ongoing bidding war by foreign suitors for Canadian companies in the natural resources sector. The USDCAD traded with a low of 1.0817 and a high of 1.0887

• The South African Rand (ZAR) was slightly firmer against the dollar, capping a Johannesburg session in which it traded sideways in line with the greenback performance abroad and the gold price

• Gold (XAU) rose by US$2.70 an ounce to US$662.60 in response to a weaker USD and a rise in oil prices.