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On a disappointing <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />US gross domestic product figure in the morning hours, the Australian dollar was lifted, positively affecting the majors cross pairs.  The AUDNZD cross was no exception as the pair vaulted higher, topping the advancers on the list of gainers for the day.  Attributed to the move higher is growing sentiment of further hawkish suggestions following next weeks Reserve Bank of Australias meeting.  Following higher than expected retail sales, a boost in manufacturing, and a turn around in the housing sector, trader have been pricing in this decision for sometime now.  However, what still remains cloudy is the need for further rate hikes as inflationary pressures continue to trouble Governor Ian McFarlane. 

According to the most recent price index report, current rates of inflation are running at an above 4 percent pace.  This is considerably higher than the 3 percent benchmark set earlier by policy makers.  Comparably, on the flip side, the kiwi major leg remained under pressure following the Reserve Bank of New Zealands decision to hold off on any further rate hikes as the pace of the economy remains questionable.  With the interest rate spread narrowing and economic prospects visibly skewed to one side, further upside potential may be in store for the cross as we enter the tailend of summer.

NZDJPY

Further strength was garnered by the Japanese yen today as considerable yen bidding followed a less than expected US gross domestic product report.  Considering the turnaround in the Japanese economy and current inflationary environment, the bid tone was expected for some time and may continue heading into next week as weaker US employment data may spur further shifting out of US based assets.  The shifting can also be seen in the NZDJPY cross even as the spread differential continues to be beneficial to carry traders.  As the Kiwi economy suffers with a widening trade deficit equivalent to 10 percent of overall growth, benchmark interest rates still offer the highest rate of the major industrialized economies.  However, with fundamentals to the downside, there remains plenty of reason to sell short the Kiwi denomination at this point as confidence begins to mount in the worlds second largest economy, Japan. 

Exacerbating the days decline, momentum from yesterdays China revaluation speculation continued to hamper the pair and looks to remain till the weekend close.  As a result, traders continue to keep an eye on the market as the Yuan forward trades at record levels and government heads downplay the need and application of a flexible currency at the current moment.

USDJPY

US gross domestic product for the second quarter was released at an unexpected decline to the consensus figure.  Expected to hit a 3 percent annualized pace of growth, GDP rose by only 2.5 percent.  The results become even more disappointing as the figure falls in comparison to the above 5 percent pace expected in the first quarter.  Now, with growth slowed seemingly and considerably, the dollar may witness some harsher than expected selling, as it did in the session, as the Federal Reserve is more than likely halting the current tightening bias.  

This sentiment boosted the Japanese yen major on the day, making it the top basis point gainer on the top market movers.  Subsequently, the PCE deflator was in line with expectations, further confirming the likelihood of rate halt.  On the flip side, the Japanese yen was boosted by further momentum of a possible China yuan revaluation as heads central bank research groups played down the need for further widening.  Keeping the major underpinned in the afternoon was plenty of quasi-official demand as institutional demand and stops took the pair to the session low.