Australian FOREX Daily Outlook 02/02/2006

MARKET SUMMARY –  02FEB06 (05:00GMT)
                                                                     

• The Dollar was stronger against the major currencies overnight as the bond market continued to adjust gradually the likelihood of a March hike. On the data front, mortgage applications showed a further slowing in the purchase index, consistent with ongoing weakening in the housing market, a key element in the expected moderation of broader activity. The US ISM manufacturing index fell from 55.6 to 54.8 in January, below forecasts centered on an outcome near 55.4. However the prices paid index rose from 63.0 to 65.0. In other markets, US share indexes were mixed with the Dow finishing up 89pts and the NASDAQ only managing a 5pt gain. The Dow was help by shares in Boeing rising by 5% and the NASDAQ was hindered by weaker earning results from Google. Crude oil was jumpy overnight, initially trading to US$69 a barrel early in New York but fell by over US$3 to close at US$66.56 a barrel. Looking ahead and jobless claims and unit labour costs are released in the States later today. The market expects unit labour costs to rise by 2.3% in Q4 versus 1% decline in Q3.

• The Euro fell from 1.2163 to 1.2051 as traders remained focused on the Federal Reserve statement which left the door open for further interest rate hikes. The Euro closed in New York near the days lows. The euro was also undermined by data showing the Eurozone manufacturing purchasing managers index ticked down to 53.5 in January from 53.6 in the previous month, despite expectations for a rise. Unemployment in the euro zone rose to 8.4 percent in December from 8.3 percent in November and October, driven by higher jobless numbers in Germany. The market will now focus on the ECB rate announcement due out later today. It is widely expected that rates will be left unchanged, but the focus will be on the press conference. The market will look for signals from ECB President Trichet for a March hike.

• The Japanese yen fell to its lowest point against the greenback in 2006 at JPY118.13 per US dollar, down from JPY117.13. The Japanese yen closed near its low in New York. Today in Japan, Bank of Japan Deputy Governor Toshiro Muto said the chances of an end to the central bank's ultra-loose monetary policy will increase over the course of the fiscal year starting in April. "I think the possibility of changing the quantitative easing framework will increase over the course of fiscal year 2006/07, as our promised condition of having the core CPI stabilise above zero percent is met". His comment did little to help the yen as it continued to weaken against the dollar.

• The Sterling fell from 1.7814 to as low as 1.7727, before closing in New York at 1.7745. However, Sterling held near a five-week high against the euro following good British manufacturing sector data for January. Britain's manufacturing sector grew at a stronger-than-expected pace last month, boosted by domestic demand, but export orders fell for the first time in eight months.

• The Aussie dollar fell from 0.7579 to 0.7524 as precious metals priced eased lower overnight. The Aussie closed near its lows in New York. Precious metal prices were lower overnight as a firmer US dollar prompted profit-taking. Gold fell by $7 to $568.60 an ounce after Tuesday's climb to levels not seen in more than two decades.

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