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FX Market Commentary - 25th February 2010

Overnight US Federal Reserve Governor Ben Bernanke testified to the House Financial Services Committee, reaffirming the Fed’s pledge to keep interest rates on hold in the foreseeable future. Governor Bernanke also maintained the countries unemployment woes are likely to keep a lid on inflationary pressures. The overall tone was not groundbreaking, however investors found comfort, evident in strength of equity markets which have recovered from a recent string of loses. Economic data from the States saw New Home Sales fall well below estimates recording a contraction of 11.2 percent in the month of January against expected growth of 3.8 percent. The small concession was Decembers originally reported decline of 7.6 percent was given a positive revision of -3.9 percent.

Across the Atlantic, Europe’s largest economy, Germany released fourth quarter Gross Domestic Product overnight which showed the economy remains stagnate for the second consecutive month to represent an annual contraction of 2.4 percent. Greece’s economic woes continued to weigh on market sentiment with Euro/Dollar sliding from highs of US$1.3627 to current levels of US$1.3583. The Greece debacle also capped potential upside on the higher yielding currencies with the Aussie dollar remaining firm - however unable to find support above 89.5 US cents. At the time of writing the local unit is buying 89.3 US cents, leading into what shaping to be a positive day for Aussie equities, which should keep the Aussie dollar well bid in domestic trade. Economic data today includes Private New Capital Expenditure for the fourth quarter.

Afternoon Comment

The Aussie dollar has moved southbound in domestic trade with moderate weakness in Aussie equities dragging the local unit lower. At the time of writing the Aussie is buying 88.7 US cents from 89.35 US cents at 9AM AEDT this morning. We did see some mild support around midday on the back of stronger than expected New Capital Expenditure data which showed 5.5 percent growth in the fourth quarter against the expected 2 percent growth.

Key economic data tonight includes Euro-Zone Consumer, economic and industrial Confidence data. Europe’s largest economy Germany, will release unemployment data which is expected to show unemployment has risen by 20,000 in the month of February, taking the unemployment rate to 8.3 percent from a previous 8.2 percent.

Key data from the States includes Durable goods order for January and Initial jobless claims for the week ending Feb 20. US Federal Reserve Chairman Ben Bernanke will also tonight conclude his testimony to the House Financial Services Committee. Overnight Mr. Bernanke reaffirmed the Fed’s pledge to keep interest rates on hold in the foreseeable future given the countries unemployment woes are likely to keep a lid on inflationary pressures. The overall tone was not groundbreaking, however investors found comfort evident in strength of equity markets which saw the DOW rise 90 pts.