Commodity currencies were in the spotlight last week with the Australian Dollar (AUD), Canadian Dollar (CAD) and New Zealand Dollar (NZD) all rising against the Greenback (USD). Hussein Sayed, Financial Analyst, ACM Middle East & Asia The Reserve Bank of Australia surprised analysts on Tuesday with an interest rate hike of 25 bps to 3.25% and signalled that more rate hikes are coming in the future as the economy recovers. Australia was the first to hike its interest rate among the G20 countries, and markets took it as a good signal that the global economy is on its way to recovery, driving equity markets and commodity prices to their highest levels since gold hit its peak in March 2008 to a record high of $1,062.70. The other surprise last week came on Thursday when Australia reported an unexpected 0.1 % decline in unemployment by creating 40,600 new jobs. Overall the Aussie rose to a 14-month high against the dollar at 0.9089 before closing at 0.9034. We expect the Aussie to continue its bullish run with a short term target of 0.9200. US services index surge Moving north to the US, the American economic calendar was quite limited last week, with the only noteworthy data coming from the release of the ISM services index, which rose to 50.9 in September, its first reading above 50 in over a year. The release was positive for equity markets sending the S&P 500 Index to 1,071.49, its biggest weekly advance in three months. In addition, the Fed is unlikely to tighten its monetary policy anytime soon, and till now has not intervened in the currency market to support the falling dollar. I believe these factors will weigh in on the dollar and further cause the continued drop of the greenback. On the data front, next week's focus will be on retail sales, the consumer price index, initial jobless claims, industrial production and the University of Michigan consumer sentiment. Weak Sterling The British Pound (GBP) was again the weakest currency vis-a-vis its major counter parts. The Pound's decline was mainly due to comments made by Ben Bernanke that the Federal Reserve will need to tighten their monetary policy once they believe the economy has improved. UK economic data was mixed, with service PMI rising to 55.3, the fifth consecutive monthly expansion for the index, whilst industrial and manufacturing data showed heavy falls which weighed heavily on the Pound. The Bank of England announced on Thursday that it will keep its policy rate unchanged at 0.5% and did not make any changes on the asset purchase programme. The minutes of last Thursday's meeting will be published on October 21, and should give us more details on whether BoE members are planning to make any changes in their policy. Watch out for the next BoE meeting on November 5 where more economic data will be presented, mainly on inflation, so any plans of expansion in QE will largely depend on these figures. Next week, focus will be on UK's retails sales, consumer price index, jobless claims, and unemployment rate. Mixed Euro results The Euro traded higher against the US dollar and British Pound, but was weaker against the commodity currencies. As expected the ECB left its refinancing rate unchanged at 1 % on Thursday, which according to president Jean Claude Trichet is a level that is just about appropriate. It was quite disappointing for him not to address the appreciation of the Euro as we were expecting a hawkish statement in this regard. The German trade balance narrowed to 8.1 million from 14.1 million last month, indicating a huge drop in exports as well as suggesting that the Eurozone's economic recovery remains uncertain. Major economic releases for next week will be the Euro-Zone ZEW Survey, Industrial Production, Consumer Price Index, and the ECB monthly report. No Yen intervention The Yen (JPY) ended almost unchanged against the dollar, still trading near its nine-month high versus the USD supported by speculations that Japanese authorities will not intervene to weaken the currency. However, Finance Minister Hirohisa Fujii commented last week that the current Yen level is consistent, and also mentioned that they are ready to intervene if, and only if, the JPY's movement becomes abnormal. I believe the current level is too high for the Yen and is affecting Japanese exports; action must be taken soon to curb the appreciation of the Yen. The economic calendar is generally uneventful next week, with only the BoJ rate policy as the most interesting to take note of. It is widely anticipated that the rates will remain at 0.10 % but focus will again be on whether the central bank will take any action to intervene in the market.

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