Australian FOREX Daily Outlook 31/05/2007

Currencies hold firm in wake of 6.5% drop in Chinese stocks. Busy end to the week for US markets with manufacturing ISM and Non Farm Payrolls.

CURRENCY TRADING SUMMARY –31 MAY 2007 (00:30GMT)

Please note: Today’s daily outlook will include key data release for the 1^st of June 2007. The next outlook will be published on the Tuesday the 5^th of June.

• U.S. Dollar Trading (USD) rebounded slightly throughout Wednesday’s session having eased earlier to end the day mixed across the board. In key data release, the FOMC minutes of the May 9 meeting failed to provide any change in bias from previous publication that risk remained that inflation would fail to moderate as expected. In U.S. share markets, the NASDAQ rose by 20 points (+0.8%) whilst the Dow Jones rallied up to 111 points higher to (+0.8%) to fresh highs, as equity markets did well to shrug off a 6.5% drop in Chinese markets. Crude oil rose by US$0.34 a barrel to US$63.49. Looking ahead, Key data is set for release on Thursday with GDP (Q1) with markets forecasting a figure of 0.8% (Prior: 1.3%). Chicago PMI is also set for release for the month of May (Forecast: 54.0 Prior: 52.9). On Friday a heavy data day is expected out of U.S. markets, staring with Core PCE (Forecast: 2.0% Prior: 2.1%) along with Unemployment Rate (4.5% unchanged). Furthermore, Friday also sees the release of manufacturing ISM for the month of May (Forecast: 54 Prior: 54.7) and finally the much anticipated Non-Farm Payrolls will round off the week with markets expecting a better figure of 135k than previous 88k.

• The Euro (EUR) further eased on Wednesday with officials pleased at the recent easing of the currency. Overall the EURUSD traded with a range of a low 1.3406 and a high of 1.3458 before closing the day at 1.3428 in the New York session. Looking ahead, Thursday sees the release of Consumer Confidence (Forecast: -3 Prior: -4) along with CPI data for the month of May with expectations the figure will be at 1.9% same as previous. On Friday, EZ data will involve Manufacturing PMI (Forecast: 55.6 Prior: 55.4) along with GDP (Q1) with markets expecting a figure of 0.6% down on the previous 0.9%.

• The Japanese Yen (JPY) was expected to experience plenty of volatility on the back of the Chinese Stock plunge, yet did little to harm the carry trade. On the data front Industrial production the came in worse than expected at -0.1%. Overall, the USDJPY traded with a range of a low 121.29 and a high of 121.77 before closing at 121.59 in the New York session. Looking ahead, Thursdays data release will mainly be focused on Manufacturing PMI (Prior: 52.3) along with housing starts (Forecast: -4.3% Prior: 5.5%). UPDATE: Manufacturing PMI at 51.4 for May.

• The Sterling (GBP) eased broadly as recent Chinese stock plunge placed pressure on high yielding carry trades. Overall the GBPUSD traded with a range of a low 1.9735 and a high of 1.9830 before closing the day at 1.9758 in the New York session. Looking ahead, Nationwide House prices will be scheduled for release (Forecast: 10.5% Prior: 0.9%) along with Gfk consumer confidence. Furthermore on Friday, Manufacturing PMI (May) is expected to be released at 53.7 slightly down on the previous 53.9.

• The Australian Dollar (AUD) eased on the back of a worse off Retail Sales figure coming in at 0.1% before the Aussie dollar further felt pressure on slight unwinding carry trades before rebounding late in the session. Overall the AUDUSD traded with a range of a low 0.8170 and a high of 0.8227 before closing the day at 0.8221 in the New York session. Looking ahead, Trade Balance (Forecast: -800 mio Previous: -1622 mio) along Capital Expenditure (Forecast: 4% Prior: – 0.2%) are sure to generate plenty of interest on Thursday. UPDATE: Trade Balance: -963 mio, Private Sector CAPEX: 9.1%

• The Canadian Dollar (CAD) saw some correction on Wednesday moving from its 30 year highs to 29 ½ year highs against the USD on firm expectations for further tightening by the BoC. Overall the USDCAD traded with a low of 1.0688 and a high of 1.0759 before closing the day at 1.0736 in the New York session.

• Gold (XAU) fell by US$4.10 an ounce to US$659.30 on Wednesday