Article Highlights

  • China’s markets still out on holiday
  • Australia’s trade balance shows 3.57B AUD trade surplus vs. 1.75B expected, 1.50B previous
  • RBA keeps rates at 1.50% as expected, hints at neutral bias
  • BOJ’s core CPI (y/y) down from 0.2% to 0.1% vs. 0.2% expected in February
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Forex price action was a mixed bag of nuts, as currency-specific reports pushed the major currencies in different directions. Here’s what’s up!

Major Events:

Australia’s trade data – Data printed before the RBA said its piece revealed a trade surplus of 3.57B AUD in February, which is not only higher than the upwardly revised 1.50B AUD figure in January but also marks the second-highest on record for the report. Wowza!

A closer look tells us that exports shot up by 1.0% from the previous month as non-monetary gold exports rose by 33% while rural (+5%) and non-rural goods (+1%) also saw increases.

Meanwhile, imports dropped by a whopping 5% as consumption goods (-10%), intermediate and other merchandise goods (-9%), and goods and services debits (-5%) saw losses.

So why did the Aussie extend its decline? Well, it seems that analysts aren’t too impressed with the decline in imports. As you can see above, the high surplus had more to do with lower imports than higher exports (though higher iron ore prices and demand from China also factored positively).

Many believe that lower imports signalled lower consumer spending, which is not exactly good news despite a strong trade report. Of course, it also didn’t help that China’s Lunar New Year celebrations have pushed China’s exports on Australia in January and that we’re only seeing the adjustments in February.

RBA kept rates unchanged – As expected, the Reserve Bank of Australia (RBA) kept its interest rates steady at 1.50% for another month in April.

The RBA generally retained its cautiously optimistic tone in its statement. It still believes that “recent data are consistent with ongoing moderate growth” following the end of the mining boom and that “holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

The central bank highlighted a few issues, however. It said that “conditions in the labour market have softened” with the unemployment rate inching higher while “wage growth remains slow.

As Forex Gump predicted, the RBA also talked about housing market risks. In particular, it said that “household borrowing, largely to purchase housing, continues to outpace growth in household income.” However, Governor Lowe and his team also pointed out that lenders have increased mortgage rates and that “the recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness.”

Last but not the least, the RBA kept its usual warnings about a strong Aussie complicating the economy’s adjustment from the mining boom.

Overall, the RBA’s not-so-optimistic tone over the labor market and its optimism over the recent restrictions in the housing market fueled speculations that the RBA now has more room to cut its rates again at the slightest provocation.

Overall risk aversion – Risk aversion remained the name of the game, as themes during the previous session continued to plague the markets.

We don’t have far to look for the culprits. The biggest factor is Trump’s upcoming meeting with Chinese President Xi, which is expected to touch upon issues such as trade, North Korea, and China’s plans with the South China Sea.

Adding to jitters is the suspected suicide bombing in St. Petersburg, Russia, where 11 people were killed and around 45 were injured. Last but not the least is the NFP report and FOMC meeting minutes, which are expected to cause renewed speculations on the Fed’s tightening schedule.

Nikkei, which didn’t like the yen’s newfound strength against the dollar, fell by another 0.64% while Australia’s A SX 200 is also down by 0.23%.

Market Movers:

JPY – The low-yielding yen continued to reap the benefits of overall risk aversion in the markets.

USD/JPY is down by another 30 pips (-0.27%) to 110.57, EUR/JPY dropped by 36 pips (-0.30%) to 117.95, and GBP/JPY slid by 28 pips (-0.20%) to 138.08. Heck, even CAD/JPY plummeted by 18 pips (-0.22%) to 82.64!

AUD – Asian session traders weren’t kind to the Aussie, which got dragged down by questionable trade surplus data and a risk-averse trading environment.

AUD/USD is down to .7603 after hitting a session high of .7615 while AUD/JPY is down by 25 pips (-0.30%) to 84.06 and AUD/NZD hit a low of 1.0832 before recovering to 1.0869.

Watch Out For:

  • 7:00 am GMT: Spanish unemployment change (-41.2K expected, -9.4K previous)
  • 8:30 am GMT: U.K. construction PMI expected to remain at 52.5
  • 9:00 am GMT: Euro Zone retail sales (0.5% expected, -0.1% previous)
  • 9:15 am GMT: RBA Gov. Lowe to speak in Melbourne