A dramatic forex trading week, with easing risk aversion and greater stability for equity markets collapsing on Thursday with the press conference following the ECB’s interest rate decision, spurred on by unexpectedly weak U.S. unemployment data and another surge in commodities prices as institutional investors sought hedges in gold, crude oil, and other commodities against USD weakness.

The RBA left interest rates on hold at 7.25%, as widely expected; however, Governor Stevens signalled the intention to raise rates should the economy not shift into a lower gear. The April trade deficit narrowed sharply as exports strengthened and imports finally eased due to slowing consumer demand, and 1Q2008 GDP growth measured 0.6% compared to 4Q2007 at 0.7% and 1.0% readings in previous quarters. AUD/USD remained within its established trading range between 0.9500 and 0.9650 but moved back toward the top of the range, closing the week at 0.9624.

Fed Chairman Bernanke’s unusual statement, saying the central bank remains “attentive” to implications of USD weakness, boosted the currency through the first half of the forex trading week but was undercut when the unemployment rate for May surged Friday 6 June to 5.5% as teenagers and recent college graduates entered the labour market, and job growth fell by 49,000. Despite these data, the U.S. economy does not seem to be worsening dramatically; Wachovia Bank characterised the situation as “stability at a sub-par pace” and with fewer downside risks.

The ECB left interest rates on hold at 4.0% Thursday 5 June, as widely expected, but the following press conference was resoundingly hawkish and President Trichet warned of future rate hikes should inflation pressures not moderate. the Euro rebounded back above 1.5700 from a low of 1.5365, and a retest of 1.60 is possible.

The BoE left rates on hold at 5.0%, as widely expected with CPI at 3.0% m/m in April and GDP growth in the UK at 1.6% 1Q2008. EUR/GBP, which had begun to ease off after its test of 0.8100, resumed its upward push and a retest is likely. GBP/USD reversed the downward trend seen on four-hour charts, which had touched 1.9461, and closed the week at 1.9697.

The BoC meets Tuesday 10 June and is widely expected to cut interest rates by 25bps due to negative GDP growth of -0.3% in 1Q2008 and decreasing U.S. demand for Canadian commodity and manufacturing exports. USD/CAD remained within its established trading range of +/− three cents of parity but moved decisively into the upper end of that range this past forex trading week. AUD/CAD, which has climbed 1100 pips since the turn of the year, climbed from the lower edge of its regression channel to the upper one during the week to close at 0.9809.

As expected, the RBNZ kept interest rates steady at 8.25%; however, the policy statement was much more dovish than market expectations and clearly signalled a rate decrease before the end of the year, broadly weakening the currency. NZD/USD slid 200 pips in the 24 hours following the announcement, while AUD/NZD climbed from 1.2258 as high as 1.2559 before closing the week at 1.2531, a gain of 2.5%.

The Japanese yen and Swiss franc continued to trade on risk aversion rather than fundamentals. The two currencies weakened on Bernanke’s remarks, suggesting increased carry trades based on rising investor confidence, then both climbed on Trichet’s announcement as investors exited this market. AUD/JPY, the barometer of the carry trade, broke its linear regression channel and reversed trend, best seen on four-hour charts.