NEWS / Monetary Policy

Forex and Commodity Market Commentary and Analysis (28 September 2006)

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The euro came off marginally vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2690 level and was capped around the $1.2730 level. Technically, today??™s intraday high was right around the 50% retracement of the move from $1.2630 to $1.2830. European Central Bank member Weber was quoted as saying the recent pullback in oil prices did not signal inflation risks have receded while ECB??™s Garganas noted additional monetary tightening will be needed if EMU-12 economic growth remains robust with inflation above 2%. Data released in Germany today saw the September jobless rate print at 10.6%, unchanged from August, while the number of jobless fell 26,000. Also, German August wholesale sales off 0.2% m/m and were up 1.9% y/y. ECB??™s Tumpel-Gugerell spoke today and noted EMU-12 economic growth has remained below trend since the inception of the euro. In U.S. news, weekly initial jobless claims receded 6,000 to 316,000 for the week ended 23 September 2006. Also, Q2 GDP decelerated from Q1 growth rates, expanding 2.6% from the initial estimate of 2.9%. The current 2.6% estimate is significantly below the 5.6% Q1 growth rate and the downward revision from 2.9% reflects a slowdown in business inventories. Moreover, the PCE price index climbed 4.0% q/q, just below the original 4.1% estimate and significantly above the 2% climb in the first quarter. The core PCE index ??“ the Fed??™s favoured inflation measure ??“ rose a revised 2.7%, down from estimates of 2.8%. Many data will be released tomorrow including the final September University of Michigan consumer sentiment data. Euro bids are cited around the US$ 1.2650 level.

??/ CNY

The yen depreciated vis-? -vis the U.S. dollar today as the greenback tested offers around the ??117.75 level and was supported around the ??117.30 level. Technically, today??™s intraday low was just above the 23.6% retracement of the move from ??113.95 to ??118.30. Vice finance minister Fujii verbally intervened overnight saying recent movements in the euro/ yen cross rate have been ???a bit rough.??? Data released in Japan today saw August retail sales climb 1.3% y/y. The Nikkei 225 stock index gained 0.48% to close at ??16,024.85. Dollar bids are cited around the ??116.90/ 65 levels. The euro gained ground vis-? -vis the yen as the single currency tested offers around the ??149.75 level and was supported around the ??149.10 level. The British pound and Swiss franc depreciated vis-? -vis the yen as the crosses tested bids around the ??220.65 and ??94.20 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar today as the greenback closed at CNY 7.8965 in the over-the-counter market, a post-revaluation low, and at CNY 7.8970 in the exchange-traded market. Moody??™s predicted Chinese GDP will remain around 9% to 10% in 2006 and 2007.

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The British pound extended its recent sell-off vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.8745 level and was capped around the $1.8915 level. Stops were hit below the $1.8810 level, representing the 38.2% retracement of the move from $1.9145 to $1.8600. Data released in the U.K. today saw Nationwide September house prices climb 1.3% m/m with the annual rate now at 8.2%. Also, U.K. July services output was off 0.3% m/m and was up 3.1% y/y. Cable bids are cited around the $1.8710/ 1.8615 levels. The euro escalated higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6770 level and was supported around the ?‚¤0.6720 level.

CHF

The Swiss franc moved lower vis-? -vis the U.S. dollar today as the greenback tested offers around the CHF 1.2485 level and was supported around the CHF 1.2420 level. Technically, today??™s intraday low was right around the 38.2% retracement of the move from CHF 1.2620 to CHF 1.2290. Dollar offers are cited around the CHF 1.2520 level. The euro notched gains vis-? -vis the Swiss franc as the single currency tested offers around the CHF 1.5845 level while the British pound came off vis-? -vis the Swiss franc and tested bids around the CHF 2.3375 levels.

AUD

The Australian dollar slumped vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7485 level and was capped around the $0.7515 level. Technically, today??™s intraday low was right around the 38.2% retracement of the move from $0.7790 to $0.7270. Reserve Bank of Australia reported household balance sheets are in decent shape despite recent interest rate tightenings. Data released in Australia today saw job vacancies fall 0.8% in the three months to August. Australian dollar bids are cited around the US$ 0.7405 level.

CAD

The Canadian dollar moved marginally higher vis-? -vis the U.S. dollar today as the greenback tested bids around the C$ 1.1085 level and was capped around the C$ 1.1125 level. Technically, today??™s intraday low was right around the 76.4% retracement of the move from C$ 1.1030 to $1.1295. U.S. dollar offers are cited around the C$ 1.1130/ 60 levels.

NZD

The New Zealand dollar moved marginally lower vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6540 level and was capped around the $0.6590 level. New Zealand dollar offers are cited around the $0.6685 level.

Gold/ Silver

Gold weakened vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 600.80 level and was capped around the $605.06 level. The move back above the psychologically-important $600.00 figure reflects the recent move higher in oil prices from multi-month lows. Silver came off vis-? -vis the U.S. dollar as the pair tested bids around the $11.58 level and was capped around the $11.82 level.

Crude Oil

Crude oil reversed some recent gains vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for November delivery tested bids around the US$ 62.55 level and was capped around the $63.30 level. The pair is trying to regain traction above the important $60.00 figure with many dealers speculation that OPEC may reduce output to keep prices supported. Iran and the European Union convened today to discuss the former??™s nuclear ambitions but no resolution was reported.