AUD/USD
Commodity Prices Add To Buying Pressure: Higher commodity prices once again lent to further upside as had been expected yesterday. Still flirting with record levels, platinum contracts maintained their 25-year record as gold prices continued above their 18-year high. Bucking the trend, however, traders bid copper prices slightly lower below the record level above $2.10 a pound. As a result, traders solidified beliefs that the Australian economy would benefit enormously from higher base metal prices, pushing the underlying currency above 0.7450. Additionally, market participants remain slightly bullish heading into the weekend as Sunday's session will open with inflationary data. Granted evidence of higher price increases shows, the currency could receive an early boost before the upcoming Reserve Bank of Australia meeting.
Technically Speaking: Breaking through upside resistance at 0.7450, the current price action looks to slight face a turnaround as it finds a ceiling test at 0.7500 and the upside trend line. Considering the incredible move seen over the past 24 hours, a retracement looks probable to 0.7435 (23.6 percent fib from the monthly move). Even though further downside looks to form early in the week, capping looks to occur at the previous 38.2 percent Fibonacci level at 0.7401.
NZD/USD
Carry Traders Pounce On Potential: Additionally benefiting from higher commodity prices, speculation bolstered the Kiwi dollar higher in addition to further bullish sentiment on next week's Reserve Bank of New Zealand meeting. With inflationary pressures still rising in the economy, Central Bank Governor Alan Bollard my opt to raise interest rates once again by 25 basis points to 7.25 percent. As a result, given a no further moves from the Federal Reserve, most likely improbable, this would garner 325 basis points for the carry trader.
U.S. Data Ignored: U.S. employment data was favorable as the world's largest economy added 215,000 jobs for the month. Average hourly earnings rose 0.2 percent on the month as the unemployment rate remained at 5 percent.
Boding well for the economy, the rise in employment may in fact be overstating the current condition as November and December are months notorious for retailer hiring. Aside from the fact, U.S. central bankers are expected to raise rates once again as manufacturing data additionally rose.
Technically Speaking: Continuing off of yesterday's momentum, the NZDUSD currency pair rocketed past the 0.7088 resistance ceiling after consolidation just below 0.7045 (23.6 percent Fibonacci level). Additionally penetrating above the 0.7100 resistance, further bidding pressure should underpin a move to the June 22nd spike high of 0.7176 before a retracements can be expected.
EUR/AUD
Lower Expectations In Light Of Higher Rates: Carry traders boosted the cross currency yet again on the session, as higher commodity prices fed to rising beliefs of potential rate increases in the Australian economy. In addition, there is now widespread acceptance of the "economic disaster" that may be present once the recent 25 basis point hike by the European Central Bank takes effect, leading to bearish sentiment over the European single currency. As a result, with an already 325 basis point spread between the two economies, traders bid the currency lower in favor of higher rates and boosted output fundamentals backing the Aussie.
Doomed Days: Nonetheless, producer prices rose in the Euro zone today with most increases being reflective of higher commodity prices. Although this does justify the rate increases seen a couple of sessions ago, consumer demand and overall productivity in the region continues to lag behind. According to the Organisation of Economic Cooperation and Development, the European nations are estimated to experience a 1.6 percent growth rate in 2005. As a result, higher interest rates would not bolster consumption at this time and further impede the current expansion. Effectively, central bankers may be looking to a short term solution which ultimately may cause a longer term problem as rising commodity prices may pose a temporary shock to the economy.
Technically Speaking: Breaking through considerable support at 1.5903, a slight confluence of the 61.8 percent Fibonacci level, the cross currency looks to consolidate slightly after the day's enormous drop. Further near term consolidation is probable before additional downside can be experienced. Next stop looks to be the October 4th low of 1.5589 before notions of a retracment can be fostered.
Richard Lee is a Currency Strategist at FXCM.
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