Strengthening confidence in the stability of financial markets saw consolidation within ranges for most major currency pairs this past forex trading week, with export currencies benefiting from new highs in commodities prices.

Although second-round inflation effects have pushed wage pressures to record levels, Australia’s high interest rates are finally slowing the demand for housing. The surge in commodity prices pushed the Australian dollar to long-term highs against several major currencies, including AUD/USD, which finally broke through strong resistance at 0.9500 to close the week at 0.9544.

U.S. consumer confidence indices remain low and industrial production disappointed; however, April housing starts and building permits surprised to the upside and both headline and core CPI were below forecast levels. Financial markets remain convinced the FOMC has adopted a neutral bias and are even anticipating higher interest rates before the end of 2008; Wednesday’s release of April’s meeting minutes and new economic forecasts could start a short-term USD rally if the tone is strong enough.

April Eurozone inflation came in below forecast at 3.3% and GDP growth surprised to the upside at 0.7% q/q and 2.2% y/y, cooling anticipation of future ECB rate cuts. The Bank of France and the German Ifo corporate sentiment indices, to be released Monday 19 May and Wednesday 21 May, respectively, will give a clearer picture of future economic developments. EUR/USD remained within the 1.5300 to 1.5600 range with a slight uptrend but without strong momentum, with a change in fundamentals required to push it out.

The Bank of England’s quarterly inflation report, released Wednesday, predicted sharply higher rates by Q42008 at 3.7% rather than the 2.7% previously forecast, casting doubts on future rate cuts; however, the pound sterling did not rally on the news due to falling retail sales and the continued decline in the housing market. EUR/GBP climbed for the second consecutive week from a low of 0.7765, reached 2 May, to close this past forex trading week at 0.7974.

GBP/USD consolidated between 1.9600 and 1.9350 without a clear trend. This currency pair’s trading range has dropped for several months, with March ranging between 2.0400 and 1.9700, and April between 2.0050 and 1.9600, best seen on daily charts.

Record oil prices and climbing gold strengthened the Canadian dollar against most major currencies; however, with some analysts calling a top on oil not far above its present level, the CAD rally has been dubbed “short term.” USD/CAD ended the week below parity, dropping below the bottom of the mid-term trading range between 1.0000 and 1.0300 although not below the long-term range which extends down to 0.9700.

The most successful currency of the previous decade, the New Zealand dollar, began sliding against most major currencies as retail sales fell by 1.2% in 1Q2008 and dairy prices dropped 4.9% in April. NZD has lost 6% against both USD and AUD since mid-March. With the RBNZ expected to begin lowering rates in September and cuts as high as 1.25% forecast within the next twelve months, this trend looks set to continue.

The BoJ meets on Tuesday 20 May and is widely expected to leave interest rates on hold at 0.5%, the lowest amongst major industrialised nations. GDP growth for 4Q2007 was revised downward from 0.9% to 0.6% q/q, and the first reading of 1Q2008 came in at 0.8% q/q, beating forecasts. USD/JPY range traded between 103.50 and 105.50, a trend that may continue barring a significant change in fundamentals.