US Dollar Faces Many Risks in the Week Ahead (page 2 of 2)

With oil prices creeping back up, another rate hike before the summer is not out of the question. In the week ahead, we are looking forward to a number of housing market related reports. This includes mortgage approvals and lending, the Hometrack and Nationwide house price reports, manufacturing PMI, money supply and the CBI Distributive trades survey. The Bank of England is divided on what to do next with interest rates and when. Since the housing sector has long been one of their primary focuses, next week's reports are extremely important.

Japanese Yen
The Japanese Yen was this past week's biggest market mover and we expect the currency to continue to be a dominant focus in the week ahead. Traders are getting tired of selling the Yen, especially after the Corporate Service Price index jumped to a 9 year high in the month of January. If US data begins to turn sour, today's liquidation of short yen trades could exacerbate. Central Bank President Fukui has indicated that interest rates will remain low for sometime and we believe him, but any evidence of stronger inflation or consumer spending will still boost rate expectations. We will get "answers" hopefully next week with the release of retail sales, CPI, unemployment, industrial production and manufacturing PMI. 2007 could be the breakout year for the Yen, to read more about this see our Special Report.

Commodity Currencies (CAD, AUD, NZD)
After a brief pause yesterday, the commodity currencies extended their impressive rally. Gold prices rose by a decent amount while oil prices saw a mild extension above the $61 barrel level. There was no Canadian or New Zealand data on the calendar, but Australia reported an in line leading index for the month of December. The prior reading was revised higher from 0.2 percent to 0.5 percent. At this point, the outlook for the commodity currencies remains bullish. The Canadian economy has been performing very well and we expect next week's GDP and current account data to continue to reflect that. Both Australia and New Zealand will be releasing trade data. The deficits of both are forecasted to have increased due to the stronger currencies. Australia is also releasing their January retail trade report, which is expected to be strong.