Daily Forex Commentary 20/10/2010

:: Australian Dollar: The Australian Dollar peaked at 0.9955 versus the US Dollar as traders speculated a further hike in interest rates sometime this year following the release of the Reserve Bank's minutes. Policy makers in Australia said 'the case to wait before making a tightening move was that the economy was still expected to continue growing at trend in the near term, credit growth had softened somewhat and the rise in the exchange rate would, if it continued, effectively be tightening financial conditions at the margin." However China's surprise move to increase interest rates 25pts to 5.56%, the first since 2007, sapped demand for growth linked currencies. The Aussie has fallen almost 3% in overnight trade opening this morning at 0.9690 against the Greenback.

- We expect a range today in the AUD/USD rate of 0.9625 to 0.9800

:: Great Britain Pound: The British Pound dipped below 1.5700 US Dollars for the first time in almost 3 weeks as investors prepared for the minutes from the Bank of England's latest meeting to be published this evening. Reports from the UK showed industrial orders had declined sharply to a six month low of -28, well below the -19 consensus, fuelling expectations of further easing measures to be taken by the Central Bank. China's decision to raise their rates by 25pts saw British resource stocks decline, putting pressure on the Sterling. This morning the Pound opens at 1.5702 versus the US Dollar. Meanwhile the Sterling is stronger against the Aussie and Kiwi starting the day at 1.6217 and 2.1120 respectively.

- We expect a range today in the GBP/AUD rate of 1.6100 to 1.6220

:: New Zealand Dollar: The Kiwi opens this morning buying 0.7450 US Dollars ahead of this morning's conference with RBNZ Governor Bollard. Initially spiking at 0.7600 against the Greenback after the Reserve Bank of Australia said its recent decision to hold interest rates steady was finely balanced, the New Zealand Dollar was sold off in a wave of risk aversion sparked by the surprise rate hike by China. The Kiwi slipped below 0.7430 US Dollars as US Treasury Secretary Timothy Geithner stated the US would not pursue currency devaluation.

- We expect a range today in the NZD/USD rate of 0.7360 to 0.7540

:: Majors: The Euro declined for the third consecutive day as investors continued to trade cautiously. European Central Bank President Jean-Claude Trichet in no uncertain terms publically disagreed with ECB member Weber on the need to phase out bond purchases immediately over the weekend. Trichet's stance may be justified as the stronger Euro has eroded the regions competiveness with Euro Zone Current Account figures showing a decline of -7.5 Billion. German economic sentiment also declined more than expected. The Euro fell from an intra-day high of 1.4000 to 1.3710 US Dollars. The Yen also suffered as the Japanese government downgraded its assessment of the economy for the first time in 20 months. Investors sought the safety of the US Dollar selling off Japanese securities. The Greenback climbed above 81.90 Japanese Yen after Treasury Secretary Geithner said the U.S. will endeavour to preserve confidence in a strong currency.

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