NEWS / Foreign Exchange

The Australian and New Zealand dollars pushed higher as interest rate differentials took focus

The U.S. dollar opened under pressure but regained its footing after mixed data released out of the U.S. A weaker than expected durable goods figure came in below expectations falling 1.7 percent in September, while jobless claims fell by 8,000 to 331,000. Offsetting the negative data, however, was the release of new home sales which unexpectedly rose 4.8 percent in September rebounding from an 11-year low in August.

Look for the dollar to remain under pressure heading into the weekend as the market turns its focus towards next Wednesday??™s Federal Reserve meeting where expectations are mounting for a rate cut of 25 basis points.

The Euro strengthened against its U.S. counterpart moving closer to an all time high and despite the German government cutting its growth forecast to 2.0 percent for 2008. Look for the Euro to continue to push higher as stronger fundamentals in the Euro zone take focus ahead of an impending rate cut from the Fed. next week.

Sterling recovered from yesterday??™s lows as European equity markets rose in early trading supporting the UK??™s single currency. In other news the Bank of England released their Financial Stability Report which sighted continued risks to the financial system, while mortgage approvals fell for a fourth straight month dropping 27 percent year/year.

The Japanese yen held its ground, but was off highs seen in early trading as short term carry trades crept back into the picture. Look for the yen to potentially push higher as investors turn their focus to next week??™s Fed. meeting.

The Canadian dollar hit a 33-year high against a broadly weaker greenback as oil and gold prices pushed higher with crude prices rising above $88 a barrel and gold lifting above $767 an ounce. The market will look towards tomorrow??™s October Business Conditions Survey for further direction into the USD/CAD pair.

The Australian and New Zealand dollars pushed higher as interest rate differentials took focus. With higher than expected inflation figures releasing earlier this week, expectations remain that the Reserve Bank of Australia will raise rates next month. Also announcing its decision, the Reserve Bank of New Zealand held rates as expected at 8.25 percent, but added that inflationary pressures remain. With strong commodity prices and a positive interest rate outlook, look for the Aussie and Kiwi to track higher.

The Mexican peso rose as investors looked towards higher-yielding securities in emerging markets. The market will await tomorrow??™s Banxico meeting where expectations are that overnight rates will remain on hold at 7.25 percent.