Forex Investment and Currency Trading

USD consolidated the losses suffered following yesterday’s US rate decision, with DXY trading around 0.5% lower than pre-FOMC levels at around 79.2. A moderate pick-up in risk appetite was observed overnight with AUD/JPY rallying up to 103.71 and EUR/JPY reaching a new all time high of 169.05. With yesterday’s FOMC rate announcement out of the way, markets will return to data-watching mode with the calendar heavily skewed to US releases. Today’s US GDP revisions should not be market moving leaving the focus on the May existing home sales report (cons. 4.95mn, 1.2%m/m), weekly jobless claims data (cons 375k), and Fedspeak from Federal Reserve Bank of St. Louis President Bullard at the ECB. The other main data release today will be New Zealand Q1 GDP which is expected to print in negative territory for the first time since December 2005.

USD/CAD failed to recoup much of the losses suffered post-FOMC, with the pair trading just above yesterday’s lows at around the 1.0100 level. Finance Minister Flaherty spoke last night, stating that the US may lose its preferential access to Canadian energy should it try to renegotiate NAFTA.

GBP/USD continued to rally overnight reaching a high of 1.9845. GBP was also firmer against EUR, recouping some of the losses suffered following the FOMC. BoE rhetoric this morning came in the form of policy makers testifying to Parliament’s Treasury Committee on the May 2008 Inflation Report. Governor King highlighted that the MPC faces a “balancing act”, citing growth remaining weak in 2008 and the inflation likely to exceed 4% before the year is over. The MPC also underlined our view that the BoE must focus on preventing wage acceleration if it is to ensure inflation falls back to 2%. In terms of data, the final estimate of Q1 total business investment registered -1.8%q/q, 4.5%y/y (cons. -1.4%, 3.7%).

EUR/USD consolidated yesterday’s gains before a brief 50pt dip that was soon reversed as EUR/USD rallied 100pts up to 1.5725. Comments from ECB’s Noyer noted that banks must remain vigilant and ready to cope with new risks at all times as the banking sector still faces an uncertain outlook. In terms of data, Eurozone M3 money supply printed broadly in line with expectations at 10.5%y/y, 10.4% 3mt avge (cons. 10.4%, 10.4%). A break above 1.5730 may clear the way for a retest of the 1.6000 psychological barrier.

NZD/USD slipped to a low of 0.76549 following a larger than expected Q1 current account deficit of NZ$2.160bn (cons. -NZ$1.700bn). This release adds to the recent plethora of data adding downside risk to tonight’s GDP print which RBC expects to register a fall in Q1 of 0.4%m/m (cons. -0.3%m/m).

AUD/USD traded within a 20pt range around the 0.9590 level reached post-FOMC. Improved risk appetite saw AUD/JPY hit 103.71, a level not seen since November of last year, while AUD also outperformed its Antipodean neighbour as AUD/NZD rallied to a 7 year high of 1.2669. In terms of data, Job Vacancies rose 3.4% in May following the downwardly revised 2.7% fall seen in April.