Daily Forecast - 10/12/2009

:: Australian Dollar: The Australian Dollar opens marginally higher today at 0.9060 after another bout of risk aversion saw the unit trade as low as 0.9017 during Asian trade on Wednesday. The Aussie was well supported at these levels and moved back up towards 0.9050 despite Australia's trade deficit widening to $2.38 billion in October as exports of coal and iron ore fell. With the domestic economy strengthening and imports such as motor vehicles growing, there may be scope for the Reserve Bank of Australia to slow the pace of interest rate increases. In offshore action, the unit traded between a high of 0.9112 down to 0.9014 as talks of a credit rating downgrade in Spain put high-yielding currencies under pressure and strengthened the greenback across the board.

- We expect a range today in the AUD/USD rate of 0.9050 to 0.9120

:: Great Britain Pound: Pound Sterling (1.6260) opens weaker against its U.S. counterpart today on UK budget deficit concerns. The pound fell for the fifth consecutive session and hit an eight-week low of 1.6166 after U.K. Chancellor of the Exchequer Alistair Darling said that Britain's budget deficit will be 611 billion pounds in the next four years, 5 billion pounds more than previously forecast. The Bank of England's Monetary Policy Committee meet tonight and are likely to leave rates on hold at the record low of 0.5 per cent. Meanwhile, the pound is lower against both the Australian Dollar (1.7880) and the New Zealand Dollar (2.2660).

- We expect a range today in the GBP/AUD rate of 1.7800 to 1.7960

:: New Zealand Dollar: The New Zealand Dollar opens higher on Thursday at 0.7180. As expected, the Reserve Bank of New Zealand (RBNZ) has left interest rates on hold at 2.5 per cent however, the kiwi rallied half a cent immediately after the announcement at 7am local time. In the accompanying statement on monetary policy, RBNZ Governor Alan Bollard hinted that rates may rise as soon as the middle of the year and said if the economy continues to recover, conditions may support beginning to remove monetary stimulus around the middle of 2010. Previously, Mr Bollard expected to keep rates at or below current levels until the latter part of 2010. Also underpinning the local unit were positive comments yesterday by Finance Minister Bill English who said It's quite possible we could end up with an economy in slightly better shape than people thought.

- We expect a range today in the NZD/USD rate of 0.7155 to 0.7220

:: Majors: The big dollar moved higher against several major currencies overnight due to another bout of risk aversion as the credit ratings outlook for Spain and Greece came under the microscope. The Euro weakened to a five-week low of 1.4668 after Standard and Poor's cut Spain's outlook from stable to negative. Yesterday, Fitch Ratings cut Greece's credit rating to the third-lowest investment grade. Meanwhile, the Japanese Yen is trading at 87.70 per dollar after third quarter gross domestic product rose at an annual pace of 1.3 per cent which has been revised down compared to previous estimates. The Yen has weakened since hitting a 14-year high of 84.83 on November 27.

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