Australian FOREX Weekly Outlook 23/08/2006

23/08/06

last week’s currency trading review

The Dollar fell against most of the major currencies last week following weak PPI, CPI and housing data. The weak data supported the view that the Fed may have reached the end of its rate hiking cycle. The Euro traded steadily, despite data not posting as strong as forecasts. The Euro closed last week at 1.2834 having started the week at 1.2737. US$/JPY closed last week at 115.70 having started the week at 116.26. Sterling was the exception as it lost ground versus the dollar due to a dovish BoE MPC minutes and a weaker-than-expected retail sales figure. The BoE minutes suggested that the BoE is not likely to start a tightening cycle or lift rates again in the near future. The GBP closed last week at 1.8820 having started the week at 1.8929. The A$ closed last week at 0.7604 having started the week at 0.7677.

The forex trading week preview

The coming week brings a rather light data calendar, following a busy couple of weeks. However, there are still a number of releases of interest, particularly in terms of monitoring the pace of activity in the US and price developments in Eurozone and Japan.

In the States housing activity is clearly in the grip of a slowdown, with starts down around 10% yoy and the NAHB survey at its lowest reading since the 1990/91 recession. Analysts expect further evidence of the ongoing moderation in the level of US housing market activity in the form of the upcoming releases for existing home sales (Wednesday) and new home sales (Thursday). Analysts expect US durable goods orders (Thursday) are likely to have declined due to lower aircraft orders. Manufacturing surveys in the US are also signaling that the pace of activity growth is slowing. The coming week sees the release of the Chicago Fed National Activity Index (Wednesday). Slower payroll growth, which is one of the key inputs, and the cooling housing market activity are likely to have weighed upon the CFNAI. We will provide our previews of these data releases in the daily summary.

In the Eurozone the key release will be the IFO sentiment indicator for August. The IFO survey is expected to post a modest decline in August as the VAT hike may offer some near term support by bringing forward some production and consumption. Analysts also look for a modest drop in the Belgian leading indicator (Wednesday) in August. German regional CPIs (from Thursday) will provide the first indication of inflation in the Eurozone in August. We will provide our previews and reviews of these data releases in the daily summary.

In Japan the July inflation report (Friday) carries particular significance, as it will be published following a five-yearly revision of the basket. This could result in core CPI – which is currently just 0.2% on an ex energy and fresh food basis – again flirting with deflation.We will provide our previews of these data releases in the daily summary.