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Australian dollar almost reached today the parity versus its US counterpart after the Reserve Bank of Australia (RBA) unexpectedly raised interest rates for the first time in 6 months. The pair AUD/USD is currently trading in the 0.9991 area.

The RBA increased benchmark rate by 25 basis points to 4.75% as the Governor of the central bank claimed that the risk of inflation rising didn’t disappear. High rates in Australia in comparison with close to zero ones in the United States and Japan make investors pour their money into higher-yielding Australian assets that stimulates the demand for the national currency. In addition, Aussie strengthened due to the speculation that the Federal Reserve and Bank of Japan will ease monetary policy this week.

Strategists at Australia & New Zealand Banking Group Ltd. comment that December rate hike is quite unlikely, so Aussie’s advance may be limited. The specialists believe that the outlook for Australian dollar will from now depend on the greenback and QE expectations.



Chart. H4 AUD/USD

Technical analysts at Forecast Pte believe that the single currency may rise to the 9-month maximum versus the greenback at $1.4400 last reached on January 19 in case it manages to overcome strong resistance at $1.4004. The specialists note that this resistance represents a descending trend line connecting maximums of October 15 and 25, which crosses ascending trend line through the minimums of October 20 and 27 forming a triangle pattern.

According to Forecast Pte, euro is currently found at the top of a triangle and there are all the chances that it’ll break above the descending trend line. In other words, the strategists expect that the uptrend will continue.

Above $1.4004 the pair EUR/USD will be poised upwards to the next resistance at the October 15 maximum of $1.4159. The euro’s target of $1.4400 is calculated by adding to $1.4004 the difference between the October 20 minimum at $1.3698 and the triangle top at $1.4119 level.



Chart. H4 EUR/USD

Currency strategists at UBS AG believe that if the single currency keeps climbing versus the greenback the European central bank will be eventually forced to ease its monetary policy conducting some stimulus measures.

The specialists suppose that the ECB may broaden the collateral it accepts for loans or even reduce its key interest rate from the current 1%. At the same time UBS believes that more asset purchases in Europe are unlikely.

On the contrary, Bundesbank President Axel Weber is calling for an immediate end of the central bank’s bond purchase-program. The ECB’s buying is already different from quantitative easing in other countries as the central bank withdraws the resulting liquidity so that the net effect on the money supply is neutral.



Chart. Daily EUR/USD

Technical analysts at Mizuho Corporate Bank claim that yesterday’s close of the pair GBP/USD was the highest since January and above the psychological 1.6000 level.

The closing candle formed on the h4 chart is a ‘doji’ that means the market is nervous – quite natural reaction with sterling trading so high.

The specialists underline that British currency isn’t overbought and momentum is steadily bullish and look forward to advance any moment now – the target levels for the pair GBP/USD are at 1.6100 and 1.6500.

According to Mizuho, it’s necessary to buy pounds if the pair lowers to 1.6000, adding to 1.5900 with stop orders below 1.5770.



Chart. H4 GBP/USD

Last week British currency bounced strongly versus the greenback from the 55-day MA to get in favorable position for revisiting of recent maximums in the 1.6100 area.

Technical analysts at Commerzbank believe that the pair GBP/USD will climb to test 1.6108/32 resistance zone limited by recent maximum and 3-month resistance line, but fails to overcome these levels.

If pound declines, support levels will be found at 1.5871 (20-day MA) and 1.5660/50 before 1.5526 (April peak) and 1.5474 (mid-July maximum).



Chart, H4 GBP/USD

Currency strategists at UBS AG claim that if the Republicans will make strong gains in both the House of Representatives and the Senate on today’s US mid-term elections dollar will climb in the near term. According to the specialists, investors expect that government spending will be reduced if the power of Republicans increases.

The pair EUR/USD advanced today from 1.3895 to 1.3980 area.



Chart. H1 EUR/USD

Technical analysts at Mizuho Corporate Bank claim that there’s a mixed outlook for the pair EUR/JPY. The matter is that Fibonacci support at 111.75 is holding, but the moving averages have crossed signaling the selling. The specialists believe that the rising daily Ichimoku cloud might provide some support.

All in all, Mizuho specialists remain bearish expecting that the single currency will get down to 111.50 and 110.50. Stop order should be placed at 113.35. The pair EUR/JPY is currently trading in the 112.60 area.



Chart. H4 EUR/JPY

Quiet holiday thinned, US elections + Fed FOMC markets, with Japan away on Holiday for Culture Day. USD/JPY at 80.67-70, still locked in tight range, with 2-way Japanese orders - as Japanese importers/ corporates likely to leave orders to buy on dips. BoJ likely to be watching markets, despite the holiday. Offers at 81.00-10, capping topside - not surprised to hear Asian sovereign, Korean, Asian CBs offers in USD/JPY - given reports of BoK and Asian CBs intervention to cap rise of their local units.. EUR/JPY back above 113 handle on back of EUR strength, but interest to sell on rallies. Offers at 113.40-50, bids at 112.50, vulnerable to downside on eurozone concerns.WL

Analysts at UBS believe that Chinese yuan will keep gradually strengthening. In their view, this may happen due to multiple reasons, among which are the necessity to defuse international currency tensions and reduce the threat of trade protectionism, as well as to fight inflation and adjust the country’s economic structure.

However, China is expected to stay firm on its current monetary policy ignoring the external calls for faster and larger appreciation of its national currency as its monetary authorities are concerned about the state of the country’s exports sector.

UBS specialists believe that yuan’s trade-weighted index will rise by 5%/year during the next few years, while the pair USD/CNY will be trading at 6.5000-6.5500 by the end of 2010 and at 6.2000 by the end of the next year.

Analysts at Societe Generale SA expect that the demand for the emerging-market currencies and bonds that offer investors higher yields is likely to surge due to the huge monetary inflows from developed nations where the rates are close to zero. According to EPFR Global data, $39.5 billion was poured into developing-nation bond funds during the first 9 months of the year.

The world’s economy needs rebalancing and the resulting upward pressure on the emerging markets will concern primarily the currencies significantly undervalued on fundamentals in the long-term. The specialists advise investors to buy this year Egyptian pounds, Indian rupees, Korean wons and Polish zlotys. As for the debt, Societe General recommends purchasing Egyptian, Polish, South African and Czech bonds.

SocGen economists point at the fact that the liquidity injected by central banks into financial market after monetary easing is absorbed by the investments in the emerging-market assets. As a result, if the Fed goes for the second round of quantitative easing making the greenback’s rate weaken this trend will continue in the short term.

At the same time, emerging-market equities, on the contrary, don’t seem to be a good investment decision as their profitability would lower due to monetary tightening on developing nations and strengthening of their currencies. India today raised interest rates for a sixth time in 2010 and the Polish central bank is as well expected to do so this year.