Daily FX Market Outlook-20-10-2010 by AceTrader

Market Review – 19/10/2010 22:58 GMTDollar rises broadly on surprise China rate hike
The greenback gained sharply against its major counterparts on Tuesday, as Chinese surprise increase in interest rates dampened investors’ risk appetites.   
Dollar rose strongly from 81.14 against the Japanese yen to 81.56 in Asian mid-day on news that the World Bank raised its forecast for economic growth in East Asia this year due to a recovery in trade and private consumption but lowered its forecast for 2011 as countries would withdraw fiscal and monetary policy stimulus. Later, the greenback surged in European midday after PBOC surprised the market by raising its benchmark 1-year interest by a quarter point, the first increase since 2007 and after-market move was seen to damp the country’s economic growth. The greenback eventually climbed to 81.93 in NY morning before retreating.  
Despite euro’s brief rise to 1.4005 in Asian morning, the single currency retreated strongly as the World Bank lowered its forecast for 2011. Euro then extended its weakness after PBOC’s rate hike and tumbled to 1.3713 in NY afternoon. The single currency was also pressured by the selloff in DJI, as DJI tumbled below 11000 on risk aversion and closed the day at 10979, ending the day down by 165 points or 1.48%.  
Although the British pound rose briefly to 1.5940 in Asian morning, cable fell sharply on broad-based selling versus usd, eur and yen as traders continued to sell the pound ahead of Wednesday’s Comprehensive Spending Review (government spending cuts). Sterling sank further after PBOC’s rate hike and tanked to 1.5680 ahead of NY closing.  
The commodity currencies tumbled on Tuesday, as aud/usd and nzd/usd tumbled from 0.9961 to 0.9662 and 0.7600 to 0.7432 respectively. The Bank of Canada left interest rates at 1% . Usd/cad rallied from 1.0162 to 1.0374.  
Economic data to be released on Wednesday include:  
Australia Westpac leading economic index, Japan Leading indicators, Germany PPI, U.K. PSNCR, Public sector net bor., Canada Wholesale sales.