Expert Analysis of Today's Market

• In NY trading Wednesday afternoon, the dollar rose against the yen but fell against the euro, pound and Australian dollar. The yen fell against the greenback and euro as global stocks advanced and investors’ risk appetite increased. Sterling gained versus the dollar as the Bank of England signaled another interest-rate increase to bring inflation back within its 2% target.


• The AUD/USD rose as the Reserve Bank of Australia raised its benchmark interest rate to an 11-year high of 6.5% to curb higher-than-expected underlying inflation. The AUD/USD is now between support at 0.8500 and resistance at 0.8620. In New York trading at 4:09 pm, the Australian dollar was quoted at $0.8616. If the pair goes higher, it is likely to test the recent high.

Financial and Economic News and Comments

US & Canada

• US wholesale inventories rose a more-than-expected 0.5% m/m to a seasonally adjusted $398.49 billion in June after rising at the same in May, the Commerce Department said. Sales of US wholesalers rose 0.6% m/m in June to a seasonally adjusted $359.45 billion after climbing 1.3% m/m in May. Sales surged 8.1% y/y while inventories rose 6.3% y/y since June 2006. That sales of US wholesalers rose faster than inventories in June may help offset the housing recession.


• The Mortgage Bankers Association’s mortgage applications index rose 8.1% to 656.5 last week, the most since January, from 607.1 the prior week, the MBA said. A gauge of demand for credit for home purchases increased 7.4%. The average rate on a 30-year fixed mortgage declined for the fourth consecutive week.


• The National Association of Realtors, lowering its forecast for existing US home sales in 2007, projected that existing home sales will drop 6.8% in 2007 to 6.04 million, compared with its prior forecast of a 5.6% decline. New home sales are likely to drop 19.0% to 852,000, compared with the previous forecast of a 17.7% decline. The NAR, however, said the housing market was not likely to suffer any further sharp downturns.

Europe

• The inflation rate will stay above the 2% goal until 2009, the Bank of England said in its quarterly inflation report, signaling another interest-rate increase. The BOE is likely to raise its benchmark interest rate a quarter-point from the current 5.75% by Q1 2008.


• German exports increased a more-than-expected 2.1% m/m, the most in 8 months in June, after falling 0.9% m/m in May, the Federal Statistics Office said. Exports surged 11.9% y/y. Faster global economic growth is helping German companies weather the euro’s appreciation. Imports rose the most in nearly 5 years, climbing 6.7% m/m in June. The surplus narrowed to €14.9 billion ($20.6 billion) in June from €17.4 billion in May.

Asia-Pacific

• The Reserve Bank of Australia raised its key interest rate a quarter-point to 6.5%, the highest in almost 11 years, to curb higher-than-expected underlying inflation, according to RBA Governor Glenn Stevens’ statement issued today. The interest-rate increase, leaving consumers facing the highest borrowing costs since Prime Minister John Howard came to office in 1996, may undermine Howard’s campaign to win a fifth term.
• Japan’s machinery orders fell 2.4% in Q2. Planned spending on equipment will rise 3.7% in Q3, the Cabinet Office said yesterday. An increase in Japan’s machinery orders will make it easier for the Bank of Japan to justify interest-rate increases.

FX Strategy Update