Daily Forex Commentary- Wednesday, 29 July 2009

:: Australian Dollar: The Aussie dollar appeared to be heading back below the 82 cent mark yesterday before comments from the RBA governor Stevens sparked a wild buying frenzy in afternoon trade. Speaking at a charity lunch his comments on the prospects for the local economy he said he can “imagine more upside risks to the economy to balance out downside risks”, a signal that rates are more likely to go up rather than down from here. Interest rate markets immediately began to price in higher interest rates further down the curve, out to Q3 or Q4 2010 triggering a big rally in the AUD. The currency jumped over a cent higher after the comments rallying from 0.8200 to an eventual early European high of 0.8330, its highest level since September last year. It did run out steam however trading lower throughout the majority of the offshore session falling back to a low of 0.8220 on the back of a weaker Euro and worse than expected U.S consumer Confidence data but opens this morning at 0.8265.

- We expect a range today in the AUD/USD rate of 0.8200 to 0.8320

:: Great Britain Pound: The GBP/USD tracked movements in the EUR/USD quite closely overnight peaking in early London trade at 1.6550 before declining to a low of 1.6390 during the U.S time-zone. With no real market moving data out of the U.K it was profit taking on equities and riskier assets in general that led the charge lower as investors remained cautious after the recent extended run higher in optimism of a global economic recovery. This morning sees the Pound Sterling open in Asia at 1.6430 against the Greenback whilst against the strong Aussie dollar the cross rate opens at 1.9870.

- We expect a range today in the GBP/AUD rate of 1.9750 to 1.9920

:: New Zealand Dollar: Economists had been expecting a decline in the N.Z Trade balance during June to around a 250 million NZD surplus however the massive 417 million deficit caught the markets by surprise. The immediate reaction to the data provoked a 40 point selloff which saw the Kiwi drop to 0.6535 during the morning session. Once the data was digested the large turnaround was attributed to a one off aircraft purchase which if excluded would have placed the trade balance in surplus to the tune of 154 million NZD. As a result the Kiwi bounced slightly back to 0.6565 but it was the news from across the Tasman that sparked the major rally during afternoon trade. Australia's central bank governor's upbeat assessment of the economy and the subsequent jump higher in the Aussie dollar led the Kiwi back above 66 cents. After peaking at 0.6630 in early European trade the NZD/USD spent the remainder of the session on the back foot retreating to this morning's opening level of around 0.6580. Today sees the release of June Building Permits and July NBNZ Business confidence which are sure to keep the Kiwi volatile.

- We expect a range today in the NZD/USD rate of 0.6530 to 0.6620

:: Majors: Confidence in the global economic recovery story continued to emanate during early offshore trade as the Euro once again rallied to retest the psychological 1.4300 barrier against the Greenback. However for the second time in as many days EUR/USD failed to break clear of resistance at this level and spent the remainder of overnight trade heading south, eventually reaching a bottom at 1.4130 as sentiment soured. U.S equity markets finished slightly lower after the release of a worse than expected July Consumer Confidence survey as measured by the Conference board, a private U.S research group that has the largest pooling sample of any U.S. measure of consumer confidence. Expectations were for a slight decrease in the index from 49.3 to 49 with the sharper than expected fall to 46.6 triggering a selloff in riskier assets. The pace of the move on currency markets suggests investors are getting more cautious at these levels and as such profit taking on short USD positions is inevitable at some point. The big dollar opens slightly lower from the overnight highs this morning at 1.4175 against the Euro with moves against the Yen still dictated by a lower EUR/JPY cross rate at 94.50. In Asia today Japanese Retail Trade data has the potential to move the Yen with June data expected to indicate an improvement in spending.

:: Data Releases: