NEWS / Foreign Debt

Forex and Commodity Market Commentary and Analysis (5 December 2006)

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The euro depreciated vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.3285 level and was capped around the $1.3360 level. Stops were reached below the $1.3305 level, representing the 23.6% retracement of the move from $1.3120 to $1.3360. Data released in the U.S. today saw Q3 non-farm productivity upwardly revised to +0.2%, the smallest gain since Q2 1997, while unit labour costs were up +2.3% in Q3, significantly below expectations. The unit labour costs data are important to Federal Reserve policymakers because they suggest higher consumer price inflation data are not materializing in higher salaries, hence there may be less pressure on the Fed to lift borrowing costs further. Other data released today saw October factory orders tumble 4.7% while the November ISM services survey printed at 58.9, a start contrast to the recent lower-than-expected November ISM manufacturing survey that evidenced contraction in that sector. In eurozone news, European Central Bank President Trichet repeated his mantra that ???excess volatility and disorderly movements of exchange rates are undesirable.??? The EMU-12 November services PMI reading improved to 57.6 from 56.5 in October while EMU-12 October retail sales were up 0.3% m/m. Most traders believe the European Central Bank will lift borrowing costs on Thursday by +25bps to 3.50%. Post-meeting comments from Trichet will be closely scrutinized to see if they yield any clues about the monetary policy outlook for 2007. Euro bids are cited around the US$ 1.3240/ 20 levels.

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The yen appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the ??114.45 level and was capped around the ??115.40 level. Technically, today??™s intraday low was right around the 38.2% retracement of the move from ??135.15 to ??101.65. Bank of Japan Policy Board member Mizuno moved the market overnight when he intimated the central bank may move interest rates higher before economic data strengthens. Most traders continue to believe BoJ will lift borrowing costs in Q1 2007. The Nikkei 225 stock index shed 0.23% to close at ??16,265.76. Dollar bids are cited around the ??113.70 level. The euro depreciated vis-? -vis the yen as the single currency tested bids around the ??152.60 level and was capped around the ??153.90 level. The British pound and Swiss franc sold off vis-? -vis the yen as the crosses tested bids around the ??226.30 and ??95.90 levels, respectively. The Chinese yuan appreciated vis-? -vis the U.S. dollar today as the greenback closed at CNY 7.8218 in the over-the-counter market, down from CNY 7.8275, and at CNY 7.8220 in the exchange-traded market.

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The British pound depreciated vis-? -vis the U.S. dollar today as cable tested bids around the US$ 1.9675 level and was capped around the $ 1.9820 level. Stops were hit below the $1.9690 level, representing the 38.2% retracement of the move from $1.9435 to $1.9845. Data released in the U.K. today saw the CIPS service sector index improve to 59.8 in November, the strongest print since January 2004. The employment and new business sub-indices also improved but these were offset by a weaker-than-expected BRC retail sales survey. Cable bids are cited around the US$ 1.9640 level. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6755 level and was supported around the ?‚¤0.6730 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.1875 level and was capped around the CHF 1.1965 level. Technically, today??™s intraday high was right below the 38.2% retracement of the move from CHF 1.2115 to CHF 1.1875. November unemployment data will be released on Thursday. Dollar offers are cited around the CHF 1.1995 level. The euro and British pound came off vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.5860 and CHF 2.3495 levels, respectively.

A$

The Australian dollar weakened vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7840 level and was capped around the $0.7895 level. Data released in Australia today saw the Q3 current account deficit print at ??“A$ 12.084 billion, down from ??“A$ 13.288 billion in Q2. Also, the November AIG services performance index printed at 48.5, down from 52.0 in October. Australian dollar bids are cited around the US$ 0.7805/ 0.7770 levels.

C$

The Canadian dollar came off vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1435 level and was supported around the C$ 1.1380 level. As expected, Bank of Canada kept interest rates unchanged at 4.25% today and cited weaker net exports as a drag on economic growth. Most traders believe BoC will be on hold for the next few months. U.S. dollar offers are cited around the C$ 1.1450 level.

NZ$

The New Zealand dollar came off vis-? -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6840 level and was capped around the $0.6905 level. NZIER reported New Zealand??™s economy is expected to expand 1.5% in the year to March 2007 from an average annual rate of 1.9% in the year to June 2006. New Zealand dollar offers are cited around the US$ 0.6895 level.

Gold/ Silver

Gold came off vis-? -vis the U.S. dollar today as the yellow metal tested bids around the US$ 639.05 level and was capped around the $648.80 level. The dollar??™s decent gains across the board added to the pair??™s losses. Silver moved lower vis-? -vis the U.S. dollar as the pair tested bids around the US$ 13.90 level and was capped around the $14.18 level.

Crude Oil

Crude oil weakened vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for January delivery tested bids around the US$ 61.54 level and was capped around the US$ 63.20 level. Seasonal crude oil stocks remain at their highest level in the U.S. since 1991 and traders await tomorrow??™s weekly inventories data. Traders also await details about a meeting of OPEC policymakers in Nigeria on 14 December.