Daily Forex Commentary 18/10/2010

:: Australian Dollar: The Australian Dollar hit parity for the first time since it was floated in 1983 following the US Federal Reserve announcing the commencement of its second round of quantitative easing will start in November. The currency spiked to a brief high at 1.0003 shortly after comments from Fed Chairman Mr Ben Bernanke who said that he "sees a case for further action". Soft inflation figures from the US and high US unemployment figures of 9% have increased the real risk of deflation in the eyes of Chairman Bernanke. Parity was fleeting as investors immediately entered a round of profit taking as US retail sales surprised the market printing at 0.6% exceeding expectations of a 0.5% increase. This morning the Aussie opens at US99 cents.

- We expect a range today in the AUD/USD rate of 0.9910 to 0.9990

:: Great Britain Pound: The Cable broke 1.61 against the Greenback in the lead up to US Federal Reserve Chairman Bernanke's speech where the second round of US stimulus was confirmed. With no economic announcements of its own, the Pound gave up its gains ending the last week below 1.60 US Dollars. The Bank of England may too be close to expanding its own stimulus programme with reports last week revealing softer inflationary pressure and little change in labour market. The Sterling opens this morning at 1.5980 versus the Greenback ahead of today's Rightmove Housing Price Index.

- We expect a range today in the GBP/AUD rate of 1.6020 to 1.6100

:: New Zealand Dollar: The Kiwi traded between 0.7570 to 0.7590 US Dollars for most of the European session before running to 0.7615 as investors anticipated Bernanke's confirmation of further stimulus injections into the US economy. Though easing measures were confirmed to start in November the lack of definition in scope failed to hold the Kiwi above 0.7600 US Dollars. Surprisingly stronger US retail sales figures rubbed away the Kiwi's gains sending it to 0.7530 against the Greenback. The Kiwi opens at 0.7560 on Monday morning.

- We expect a range today in the NZD/USD rate of 0.7535 to 0.7600

:: Majors: European inflation figures remained stable in line with expectations at 1.8% annually and 1% core. The same could not be said for Euro Zone trade balance which shrank for the fourth consecutive month by 1.4 billion in August as Dollar weakness pushed the Euro higher eroding the EU's export sector. Speculation surrounding the second round of monetary easing in the US pushed the Euro briefly above 1.4150 against the Greenback before slipping back below 1.4000 US Dollars. Meanwhile, the greenback opens at 81.37 against the Japanese Yen.

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