DailyFX Fundamentals 10-19-07 (page 2 of 2)

Despite the fact that USDCAD fell from 1.06 down to 0.9950 in the month of September, Canadian consumer prices remain strong thanks to a tight labor market. Core prices grew by 0.4 percent last month while annualized headline prices increased from 1.7 to 2.5 percent. This indicates that domestic inflation must be strong if consumer prices are still rising despite the counteracting effects of a strong currency. Oil prices also hit $90 a barrel today which is continuing to fuel gains in the loonie even though prices have since retraced. Canadian retail sales are the only piece of market moving CAD data on the calendar next week. Given the sharp drop in wholesale sales, we also expect a downward surprise in retail sales. The Australian and New Zealand dollars did not join in the CAD's rally today. In fact, they are down sharply particularly against the Japanese Yen. Next week, the Reserve Bank of New Zealand will be meeting to decide on interest rates while Australia will be releasing consumer prices.

Euro: Another Record High, Further Gains in Store

The Euro climbed to another record high today despite weaker German producer prices. Unlike the French, the Germans continue to be very comfortable with the level of their currency as well economic growth. Today, the German Finance Ministry said in its monthly report that the available economic indicators suggest that the upswing remains intact and the financial market turbulence has not appreciable burdened the economy. This will be an important perspective to keep in mind ahead of next week's German IFO report. The stability of analyst sentiment and the firmness of Eurozone exports could keep businesses optimistic, which would help to drive further Euro gains.

British Pound: Strong Economic Continues to Take the Currency Higher

The British pound is one of the strongest currencies in the foreign exchange market today. Better than expected third quarter GDP growth and the August index of services sent the currency pair to a 2 month high. We have had nothing but firm economic data from the UK this entire week, which means that the Bank of England will keep interest rates steady for the remainder of the year. Next week, we are only expecting the CBI industrial trends report, Nationwide house prices and BBA mortgage approvals. Continued strength in economic data could take the British pound back to its July highs against the US dollar.