Australian FOREX Daily Outlook 15/02/2006

MARKET SUMMARY –  15FEB06 (05:00GMT)
                                                                     

• The Dollar strengthened against the major currencies after retail sales figures in the States were much stronger than expected. However the dollar could not hold onto its gains and ended up marginally weaker versus the majors by the end of the New York session. US retail sales surged by 2.3% in January, nearly triple market forecasts and the strongest gain since May 2004. Excluding autos, sales rose 2.2% in December, the largest rise in six years. Sales were supported by warmer weather and redemptions of holiday gift-cards. US sharemarkets posted solid gains due to the stronger than expected retail sales and a sharp 2.7% fall in oil prices. The Dow Jones closed up 136pts and the NASDAQ was up 22pts. Crude oil slumped by US$1.67 to a six week low of US$59.57 a barrel. Looking ahead and the key event that the market has been awaiting, occurs later today with Federal Reserve Bernanke’s first major appearance before Congress. The bond market has priced in further interest rate hikes and the dollar could be vulnerable if Bernanke sends a more dovish message.

• The Euro traded in a range of 1.1859 to 1.1922, before closing near its highs in the New York session. Overnight, Eurozone GDP rose a moderate 0.3% in the December quarter 2005, in line with expectations. German ZEW economic sentiment came in marginally weaker than expected in February. It fell to 69.8 from 71.0 in January, while the consensus expectation was for it to remain steady.

• The Japanese yen traded in a range of 117.11 to 117.71 versus the dollar, before closing at 117.38 in the New York session.

• The Sterling traded in a range of 1.7284 to 1.7442, before closing in the New York session at 1.7365. Sterling came under pressure when UK January CPI came in weaker than consensus, with the y/y rate falling back below the 2.0% y/y target to a 1.9% y/y rate for the first time since May, against consensus expectations for acceleration to 2.1%.

• The Aussie traded in a range of 0.7356 to 0.7415, before closing near its highs in the New York session.

• Gold rebounded in European trade retracing from its major drop yesterday to a five week low at 534.50 lead by heavy selling by speculative traders and fund managers. The drop was seen as a healthy correction in a bull market analysts say that the market is expected to be volatile in the coming days moving in a broad range before finding a solid base. One of the gold trigger now is that the U.S. Fed would keep raising interest rates triggering liquidation by funds and speculators as gold could become less attractive. Another trigger is the Crude oil, which extended a two week retreat below 61$ a barrel, also dampened the sentiment as gold is often seen as a hedge against inflation.

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