Week ending 29 May 2009: The forex trading market punishes USD over fiscal policy, with surging commodities prices and bond yields adding further downward pressures.

The RBA meet Tuesday, 2 June and are expected to retain steady rates at 3.0%. March Westpac leading index rose 0.3% m/m, the Conference Board 0.4%, while May DEWR skilled vacancies fell −7.0%. April private sector credit rose 0.1% m/m, 4.6% y/y, below trend. 1Q2009 private capital expenditure fell −8.9% q/q and construction output −3.7%. AUD/USD traded between 0.7690 and 0.7880 for much of the week, on Friday surging through resistance and closing at 0.8006 for a gain of 10.2% in May.

Second estimate U.S. 1Q2009 GDP improved to −5.7% annualised, below market expectation, with personal consumption slipping to 1.5%. April new home sales rose 0.3% m/m, existing home sales 2.9%, with the 1Q2009 Case-Schiller home price index down −19.1% y/y and almost half of all sales distressed. May consumer confidence rose to 54.9, April durable goods orders 1.9%.

The ECB meet Thursday, 4 June; a 25bps cut is possible, but initiating pseudo-quantitative easing is more likely should any action be taken. First estimate May CPI printed flat y/y. March current account printed a deficit of €6.5Bn, €3.5Bn n.s.a., while March industrial orders fell −0.8% m/m, −26.9% y/y. May confidence indicators registered −31 consumer, 69.3 economic, −34 industrial, and −23 services. EUR/USD trended gently down in the early week but punched through resistance at 1.4050 on Friday, closing at 1.4137.

The BoE meet Thursday and are expected to hold rates at 0.50% and their QE programme as underway. May consumer confidence held at −27 while the CBI distributive trade fell to −17 from 3 previous. May Nationwide house prices rose 1.2% m/m but remain down −11.3% y/y. GBP/USD also crossed a key resistance level at 1.6000 on Friday, closing at 1.6162 after rising 9.4% in May. In volatile trading, EUR/GBP bounced from its 200-MA on daily charts and rose to close at 0.8743.

The BoC also meet Thursday and have previously committed to steady rates at 0.25% until 2010 with no market expectation of QE. 1Q2009 current account printed a deficit of CA$9.1Bn. USD/CAD is beneath the 200-MA on both daily and weekly charts, falling to close at 1.0921, and AUD/CAD traded flat for the week, closing at 0.8741.

New Zealand’s April merchandise trade balance printed a surplus of NZ$276.0Mn although the budget is scheduled to run a deficit for the next decade. 2Q3009 RBNZ inflation expectations printed 2.2% and May business confidence improved to 1.9% from −14.5%. NZD/USD rose 12.9% in May, breaking through resistance at 0.6260 and closing at 0.6408. AUD/NZD trended down to close at 1.2490.

Japan’s April trade balance printed a surplus of ¥68.9Bn with exports improving −39.1% y/y, imports −35.8%. May manufacturing PMI printed 46.6, April vehicle production −47.1% y/y, and April industrial production 5.2% m/m, −31.2% y/y. April unemployment rose to 5.0% and household spending dropped −1.3% y/y. May Tokyo CPI fell −0.8% y/y, nationally −0.1%. USD/JPY retested the 200-MA on daily charts and the lopsided neckline of a still-evolving head-and-shoulders formation at 97.25 before falling to close at 95.27; target remains at 92.50. EUR/JPY returned to the upper reaches of its trading range at 134.69, while the AUD/JPY uptrend resumed, rising 6.7% in May to 76.27.