Posted: 01 Jun 2010 11:51 PM PDT

The Australian dollar is edging lower, after major fundamental news came out as expected. It’s now hovering over an important support line. Will it continue suffering from global fear?

Australian GDP grew by 0.5% in the first quarter of 2010. This was slightly short of the 0.6% growth rate that was expected. Looking beyond the headline figure, the growth rate for the previous quarter (Q4 of 2009) was revised to the upside, from 0.9% to 1.1%.

So, all in all, the Australian economy continues to boast neat growth, even though the rate hikes took their toll on the speed. Speaking of the rates, Australia central bank decided to leave the Cash Rate unchanged at 4.5%. This followed two surprising rate hikes in previous decisions.

Similar to the GDP release, the rate decision outcome was expected. The focus was on the rate statement. Glenn Stevens’ RBA stated that the rates would stay unchanged in the near term, but didn’t rule out further rate hikes after this “near term”.

Aussie suffers from global fear

While both major events were good, this wasn’t enough for the Aussie. Every day brings more bad news from Europe – more fear. As fear takes over, traders pull out from so called “risky” currencies such as the Aussie. The Australian economy is doing far better than other economies, in all parameters, yet the greenback continues enjoying its safe haven status.

Unemployment rate in the US stands on 9.9%, almost double Australia’s unemployment rate, that stands at 5.3%. This doesn’t matter. Australia enjoys steady growth, as it never experienced a recession. Australia’s interest rate, 4.5%, is higher than all its counterparts. Only now, Canada joined Australia in rate hikes, but th Canadian rate is only 0.5%, after the hike.

AUD/USD approaching the support line

After bouncing off the critical 0.8567 resistance line last week, the Aussie continued losing ground. At first, it lost the 0.8477 support line. An attempt to break higher met resistance and resulted in a new fall.

The important line of support is 0.8240. In the last days, AUD/USD fell twice to 0.8275 and bounced back up. Fear didn’t fully take over. This double bottom could turn into a rebound and to another attempt to rise.

Tomorrow, Australian trade balance will be released. It seems that any small piece of news from Europe has a stronger impact than Australian news these days. If the GDP and the rate decision did little to move the Aussie, trade balance will probably have little impact.

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Forex Daily Outlook – June 2 2010

Posted: 01 Jun 2010 02:00 PM PDT

US Pending Home Sales and Australia’s GDP are the major events this day. Let us see what awaits us today

In the US, Pending Home Sales is expected to drop from 5.3% to 4.8% after the upswing of March and April.

Later in the US, An increase of 200,000 in the Total Vehicle Sales from 11.2M in May indicating stronger consumer confidence in the US market.

Finally in the US, Challenger Job Cuts is expected another decline of -71.1% as in May’s report showing improving job prospects.

In Europe, Industrial Producer Prices are expected to rise by 0.7%, 0.1% more than in May’s report.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Great Britain, Halifax House Price Index is expected to rise by 0.3% compared to a drop of -0.1% in May giving a boost to the housing industry.

More in Great Britain, Construction PMI is expected to continue its growth for the third consecutive month reaching 58.3 points. This indicates recuperation in the construction sector and suggests that the whole UK economic recovery has real substance.

Later in Great Britain, Net Lending to Individuals is also expected to edge up 0.5B form April’s fall of 0.6B reaching 1.1B and Final Mortgage Approvals are also predicted to rise by 3,000 from May reaching 50K.

Read more about the Pound in the GBP/USD forecast.

In Switzerland, Swiss retail sales growth slows from 4.0% in March to 3.7% in April.

In Australia, Gross Domestic Product is anticipated to drop 0.3% from the impressive rise of 0.9% in the previous quarter reaching 0.6%. Nevertheless, Australia’s growth rate is still satisfactory.

More in Australia, AIG Services Index is expected to continue its rise of previous months after crossing the 50 point score in May report (52.3 points).

For more on the Aussie, read the AUD/USD forecast.

In Japan, Capital Spending continues to drop expecting to reach -9.5% this quarter however there is a major improvement from -17.3 in October-December and -24.8% the quarter before.

That’s it for today. Happy forex trading!

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USD/CAD rises on Worries, Despite Rate Hike

Posted: 01 Jun 2010 06:05 AM PDT

The Bank of Canada made its move – Canada’s interest rate was raised by 0.25% to 0.5%. Canada is the second Western country to raise the rates after Australia. With today’s gloomy atmosphere, reflected also in the BOC Statement, the loonie is retreating.

USD/CAD is now trading at 1.0530, higher than before the statement, while still staying within the 1.04-1.0550 range it traded A rate hike usually boosts the currency. The reaction is different and it has two reasons:

First, the decision was anticipated. The BOC made it clear that a rate hike was coming soon. While some economists thought that Mark Carney would wait until the next meeting, on July 20th, most economists foresaw the rise at this time.

The second reason is the wording of the rate statement. On one hand, the BOC stated the strength of the economy, that is well reflected in the GDP. But on the other hand, it mentioned again and again the troubles in Europe. The uneven global recovery currently has a small impact on Canada, via oil prices, but is still causing worries. Here’s a quote:

The global economic recovery is proceeding but is increasingly uneven across countries, with strong momentum in emerging market economies, some consolidation of the recovery in the United States, Japan and other industrialized economies, and the possibility of renewed weakness in Europe. The required rebalancing of global growth has not yet materialized.

These worries about Europe mean that the BOC will be very careful with raising the rates again. Global slowdown means that prices will also remain under control. Without a rise in inflation, there won’t be another rise in the rates. Not soon.

Just today, EUR/USD reached fresh multi-year lows. The growing fears of a double dip recession in Europe sent the common currency further down.

Earlier this week, Canadian GDP surprised with a leap of 0.6% in March, closing an excellent Q1 for Canada. With an annual growth rate of 6.1% in the first quarter, double the American figure, the US economy can only envy the Canadian one. Following the GDP release, USD/CAD approached the critical technical level of 1.04, but bounced back. It continued by trading in a perfect range – 1.04 to 1.0550.

Note that also in jobs, the current American unemployment rate stands on 9.9%, while the Canadian rate is at 8.1%. This big gap is expected to remain unchanged. On Friday, Canada will release its fresh employment figures at 11:00 GMT. At 12:30 GMT, an hour and a half later, American Non-Farm Payrolls (and the unemployment rate are released). This will supply a great showdown for the USD/CAD, which is already experiencing a very busy and very tense week.

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